BRUSSELS, July 17 (Xinhua) -- The European Commission on Friday proposed a revision of the European Union's Emissions Trading System (ETS), aiming to ease pressure on companies in their decarbonization efforts while keeping the bloc on track to meet its 2040 climate targets.
The proposed reform would adjust the system's Linear Reduction Factor (LRF), the annual rate at which the overall emissions cap declines, to 3.7 percent for 2031-2035 and 1.7 percent for 2036-2040, according to the Commission.
The LRF is currently set at 4.3 percent per year for 2024-2027 and 4.4 percent per year from 2028.
The Commission also proposed extending free carbon allowances for companies beyond 2030. For industries covered by the EU's Carbon Border Adjustment Mechanism (CBAM), the phase-out of free allowances would be delayed until 2038.
To improve market stability, the Commission proposed reforms to the Market Stability Reserve (MSR), adjusting its parameters to reflect the shrinking carbon market after 2030. The intake rate would be reduced to 12 percent from the current 24 percent, allowing more emission allowances to remain in the market.
The revised ETS would also expand its scope by strengthening rules for the aviation sectors, covering departing international flights to destinations within 5,000 kilometers of the EU's center, as well as all incoming and outgoing flights operated by business jets.
The Commission said a planned Industrial Decarbonization Bank would mobilize 100 billion euros (114 billion U.S. dollars) to support large-scale industrial decarbonization projects across Europe, with its first phase expected to be launched before 2030.
European Commission President Ursula von der Leyen said in a statement that the proposal would provide relief to industry while supporting the clean transition. "From lowering electricity prices to adapting our carbon market to the changing global realities, this is also an investment and independence plan," she added.
Launched in 2005, the EU ETS is one of the world's largest carbon markets. It requires polluters to pay for their greenhouse gas emissions while generating revenue to finance the clean transition. The system is a key instrument for helping the bloc achieve its ambitious target of reducing net greenhouse gas emissions by 90 percent by 2040.
The ETS underwent its most recent major revision under the EU's "Fit for 55" climate package, proposed by the Commission in 2021 and adopted by the European Parliament and the Council of the European Union in 2023.
The latest proposal will now enter negotiations between the EU lawmakers and members before it can become law. ■