Industry news

The European Commission has proposed the most significant overhaul of the EU Emissions Trading System since its creation, a reform that directly affects how carbon markets interact with forest monitoring and nature-based solutions. The changes, announced on July 17, slow the annual rate at which emissions permits are reduced from 4.3% to 3.7% in 2031 and further to 1.7% in 2036. Free pollution permits for heavy industry are extended to 2038, and the phase-in of the carbon border levy is delayed to the same year.

For the earth observation and conservation community, several provisions stand out. From 2036, companies will be allowed to use international carbon credits to cover up to 2% of ETS sector reductions. High-integrity credits from nature-based projects, including forest conservation and restoration, would become eligible under this mechanism. The Commission also confirmed that permanent carbon removals, such as direct air capture, can now be integrated into the ETS, creating new demand for verified removal credits.

The proposal expands ETS scope to include smaller ships down to 400 gross tonnage and waste incineration from 2031. Aviation coverage extends to flights departing Europe for destinations up to 5,000 kilometres away. A new requirement mandates that at least 50% of ETS auction revenues, which have generated over 260 billion euros since 2013, must be spent on domestic industrial decarbonisation.

Critics including WWF and Carbon Market Watch estimate the slower cap trajectory could allow up to 2.4 billion additional tonnes of CO2 by 2050 compared to the previous pathway. The Commission maintains the proposal is aligned with the EU's 2040 climate target of 90% net emissions reduction. The plan now enters negotiations between member states and the European Parliament, with final approval expected by end of 2026. For organisations developing MRV technologies for carbon credits and removals, the signal is clear: the EU is building a compliance-grade framework that could eventually link to voluntary carbon markets.