The European Commission’s proposed reform of the EU Emissions Trading System (ETS)—the cornerstone of the bloc’s climate policy—is fundamentally incompatible with the EU’s mandate to reduce emissions by 90% by 2040. This is the primary conclusion of a new analysis conducted by the Öko-Institut and commissioned by WWF Germany, which warns that the current proposal could jeopardize the EU’s long-term climate integrity.
The findings arrive less than a year after the EU reached a consensus on its ambitious 2040 climate target. The analysis reveals that the Commission’s proposed structural changes to the ETS would inflate the supply of carbon allowances by up to 10% above projected demand. By flooding the market with these extra permits, the reform would inadvertently weaken the carbon price signal, effectively diluting the financial incentive for industries to invest in the radical technological shifts required for deep decarbonization.
Lisa Okken, Industrial Policy Expert at WWF Germany, argued that the proposal prioritizes short-term bureaucratic convenience over the long-term competitiveness of European industry. “The Commission would rather gamble on climate protection than safeguard the future of European industry,” Okken stated. “This gap is being filled with complicated accounting tricks and excessive flexibility, meaning that the ETS would lose its edge. Emissions would remain too high for too long, and EU industry would be left behind in the past.”
A central point of contention is the proposal to allow companies to exceed the existing emissions cap in exchange for future “permanent carbon removals.” Experts note that this relies on a dangerous level of uncertainty; the technology to facilitate large-scale, permanent removals is not currently operational at the necessary capacity. Furthermore, the criteria for these removals—specifically those involving Bio-Carbon Capture and Storage (BECCS) and biochar—have been widely criticized by environmental groups for being scientifically flawed, risking a scenario where the system accounts for “removals” that never actually materialize.
The analysis also critiques the inclusion of international carbon credits within the ETS. The European Scientific Advisory Board on Climate Change has previously highlighted that only 16% of international credits have historically resulted in genuine, verifiable emissions reductions. Critics argue that by attempting to “buy” its way toward targets using dubious international offsets, the EU is undermining its own domestic climate architecture.
The potential failure of these mechanisms creates an uneven playing field. If industrial emissions are not curtailed effectively within the ETS, the burden of reaching the 90% reduction goal will likely be shifted to sectors covered by the Effort Sharing Regulation, such as buildings, transport, and agriculture—areas where emissions reductions are already politically and socially challenging.
“There is no need to rely on these types of accounting tricks, because many of the technologies needed to decarbonize industry are already available today,” said Camille Maury, Senior Policy Officer on Industrial Decarbonisation at WWF EU. “What is missing is not the solutions, but the incentives to deploy them at scale. A weaker ETS would undermine those incentives.”
WWF is calling on the European Parliament and the Council to reject the current proposal and offer a more ambitious alternative. Specifically, the organization advocates for maintaining a strong, predictable carbon price by setting the linear reduction factor at 4.4% from 2031 to 2035, and 2.7% from 2036 onwards. Furthermore, they urge lawmakers to develop frameworks for carbon removals and international climate investments entirely outside of the ETS, ensuring that these initiatives complement, rather than substitute, domestic industrial action.
As the policy moves toward trilogue negotiations, the pressure is mounting on EU institutions to reconcile the proposed reform with the reality of the climate crisis. Without a robust ETS, advocates fear that the 2040 target will remain an aspirational benchmark rather than a measurable trajectory for European industry.
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