This paper assesses the European Commission’s review of the EU Emissions Trading System (EU ETS) from the perspective of institutional investors.
It considers the proposal against six principles for the ETS in the 2030s, covering the credibility of the emissions cap and carbon price signal, market governance, the Carbon Border Adjustment Mechanism (CBAM), the use of ETS revenues, conditionality for free allocation, and complementary policies to support industrial decarbonisation.
The paper finds that the proposal helps embed the ETS more firmly within Europe’s industrial policy framework, particularly through increased investment support and plans to link free allocation to company-level decarbonisation investments. However, it also highlights concerns that changes to the cap trajectory, Market Stability Reserve and free allocation could weaken market scarcity and delay investment signals.
The paper recommends maintaining or strengthening the ETS cap trajectory through the 2030s, retaining Invest in EU Decarbonisation Plans and ensuring that ETS revenues are directed towards real decarbonisation. It also calls for a stronger CBAM, improved access to industrial decarbonisation funding and complementary policies to accelerate electrification, grid investment and the deployment of clean technologies.
This position paper complements IIGCC’s investor statement calling for a robust and predictable EU ETS, published earlier this year.