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EUROPEAN COMMISSION

Brussels, 17.7.2026 COM(2026) 616 final

2026/0212 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Directive 2003/87/EC and Decision (EU) 2015/1814 as regards driving

competitiveness and cost-effective decarbonisation

{COM(2026) 619 final} - {COM(2026) 620 final} - {SEC(2026) 616 final} - {SWD(2026) 616 final} - {SWD(2026) 617 final} - {SWD(2026) 618 final}

(Text with EEA relevance)

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EXPLANATORY MEMORANDUM

1. CONTEXT OF THE PROPOSAL

• Reasons for and objectives of the proposal

The EU emissions trading system (EU ETS) is the cornerstone of the EU’s climate policy,

driving decarbonisation, competitiveness and resilience. Directive 2003/87/EC (the ‘ETS

Directive’) lays down the rules for greenhouse gas (GHG) emission allowance trading within

the EU. The market stability reserve (MSR) for the EU ETS was established by Decision

(EU) 2015/1814 (the ‘MSR Decision’)1 to make the EU ETS more resilient in relation to

supply-demand imbalances. Regulation (EU) 2015/757 of the European Parliament and of the

Council of 29 April 2015 on the monitoring, reporting and verification of greenhouse gas

emissions from maritime transport2 (the MRV Maritime Regulation) completes the set of

legislative acts regulating the EU ETS.

Regulation (EU) 2021/1119 of the European Parliament and of the Council (the European

Climate Law)3 set a legally binding economy-wide target of achieving net-zero GHG

emissions by 2050. The ETS Directive and the MSR Decision were amended in 2023 by

Directives (EU) 2023/958 and (EU) 2023/9594 as part of the ‘Fit for 55’ package, which

aimed to make all sectors of the EU’s economy fit to meet the intermediate 2030 target of

reducing net GHG emissions by at least 55% by 2030, compared to 1990 levels.

The world today looks different than a few years ago. Russia’s war of aggression against

Ukraine and the conflict in the Middle East confront the EU once again with rising energy

prices, damaging the industrial competitiveness of the European industry. Simultaneously,

climate change is intensifying, with extreme weather events in Europe becoming more

frequent and severe. To face these challenges, the EU needs to invest in homegrown and clean

energy and continue decarbonisation to reduce its dependencies and strengthen industrial

competitiveness, while promoting a just and socially fair transition for all. This was already

1 Decision (EU) 2015/1814 of the European Parliament and of the Council of 6 October 2015 concerning

the establishment and operation of a market stability reserve for the Union greenhouse gas emission

trading scheme and amending Directive 2003/87/EC (OJ L 264, 9.10.2015, pp. 1-5, ELI:

http://data.europa.eu/eli/dec/2015/1814/oj). 2 Regulation (EU) 2015/757 of the European Parliament and of the Council of 29 April 2015 on the

monitoring, reporting and verification of carbon dioxide emissions from maritime transport, and

amending Directive 2009/16/EC (OJ L 123, 19.5.2015, p. 55-76, ELI:

http://data.europa.eu/eli/reg/2015/757/oj). 3 Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing

the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU)

2018/1999 (‘European Climate Law’) (OJ L 243, 9.7.2021, pp. 1-17, ELI:

http://data.europa.eu/eli/reg/2021/1119/oj). 4 Directive (EU) 2023/958 of the European Parliament and of the Council of 10 May 2023 amending

Directive 2003/87/EC as regards aviation’s contribution to the Union’s economy-wide emission

reduction target and the appropriate implementation of a global market-based measure (OJ L 130,

16.5.2023, pp. 115–133, ELI: http://data.europa.eu/eli/dir/2023/958/oj) and Directive (EU) 2023/959 of

the European Parliament and of the Council of 10 May 2023 amending Directive 2003/87/EC

establishing a system for greenhouse gas emission allowance trading within the Union and Decision

(EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union

greenhouse gas emission trading system (OJ L 130, 16.5.2023, pp. 134–202, ELI:

http://data.europa.eu/eli/dir/2023/959/oj).

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set out in the Competitiveness Compass5 and the Clean Industrial Deal6 which were adopted

in 2025. The rapidly changing geopolitical context makes this even more relevant.

The EU has adopted a legally binding climate target of 90% reduction in net GHG emissions

for 20407. The 2040 climate target provides the necessary predictability and stability for

investments in the EU’s clean energy transition and for driving industrial competitiveness,

taking full account of the current economic, security and geopolitical landscape, in alignment

with the EU’s Competitiveness Compass8, the Clean Industrial Deal9 and AccelerateEU10. To

achieve the new economy-wide 2040 climate target, Article 4(4) of the European Climate

Law requires the climate and energy acquis to be revised and updated.

In its conclusions of 19 March 202611 the Council invited the Commission to present a review

of the EU ETS by July 2026 at the latest, to reduce the volatility of the carbon price and

mitigate its impact on electricity prices, including related supply chain costs, and on diversion

of activities, while preserving the essential role of the ETS in the climate and energy

transition through a market-based price signal for carbon emissions that drives investment and

innovation. The Council, the Parliament and the European Commission, signed the ‘One

Europe, One Market’ roadmap in April 2026 setting Q1 2027 as target for agreeing on the

review of the EU ETS.12

The present review of the EU ETS is the first part of a package of proposals to contribute to

Europe’s economic resilience and competitiveness and achieve the economy-wide 2040

climate target. Thus, the objective of this proposal is to ensure that the EU ETS continues to

support the achievement of economy-wide carbon neutrality by 2050 in a market- and rule-

based, technology-neutral and economically cost-effective manner, while fostering

simplification, strengthening its role as an innovation and investment engine driving

competitiveness, as well as rewarding economic first-movers and frontrunners and providing

more support to help industry make the transition.

The EU ETS has demonstrated its effectiveness, as ETS sectors have reduced their emissions

by over 50% since 2005, while the economy has continued to grow. The EU ETS is an

essential driver of clean electrification. Emissions from electricity and heat production have

dropped by 58% while capacity has expanded by 24% since 1990, incentivising the

deployment of homegrown, clean energy sources such as renewables, benefitting clean

5 Communication from the Commission to the European Parliament, the European Council, the Council,

the European Economic and Social Committee and the Committee of the Regions, A Competitiveness

Compass for the EU, COM(2025) 30 final. 6 Communication from the Commission to the European Parliament, the Council, the European

Economic and Social Committee and the Committee of the Regions, The Clean Industrial Deal: A joint

roadmap for competitiveness and decarbonisation, COM/2025/85 final. 7 Regulation (EU) 2026/667 of the European Parliament and of the Council of 11 March 2026 amending

Regulation (EU) 2021/1119 as regards the setting of a Union intermediate climate target for 2040 (OJ

L, 2026/667, ELI: http://data.europa.eu/eli/reg/2026/667/oj). 8 Communication from the Commission to the European Parliament, the European Council, the Council,

the European Economic and Social Committee and the Committee of the Regions A Competitiveness

Compass for the EU (COM(2025) 30 final). 9 Communication from the Commission to the European Parliament, the Council, the European

Economic and Social Committee and the Committee of the Regions The Clean Industrial Deal: A joint

roadmap for competitiveness and decarbonisation (COM(2025) 85 final). 10 Communication from the Commission to the European Parliament, the Council, the European

Economic and Social Committee and the Committee of the Regions AccelerateEU - Energy Union

(COM(2026) 370 final). 11 European Council Conclusions of 19 March 2026 EUCO 1/26 CO EUR 1, CONCL 1. 12 One Europe, One Market Roadmap of the European Parliament, the Council of the European Union and

the European Commission 23 April 2026, 8473/26.

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producers and boosting industrial competitiveness and resilience. Furthermore, together with

the Carbon Border Adjustment Mechanism (CBAM), the ETS has helped to persuade many

other countries to set up their own carbon pricing schemes. The World Bank estimates that

today, around 30% of global emissions are covered by carbon pricing, and this share is

growing.

The EU ETS should continue driving economic modernisation and decarbonisation. At the

same time, the transition towards climate neutrality requires strong support for Europe’s

industrial and clean tech sectors. The 2023 review of the EU ETS introduced several review

clauses to assess the appropriateness of potential adjustments to the system on aviation,

maritime and stationary installations in 2026, under Articles 3gg, 28b and 30 of the ETS

Directive. In addition, Article 3 of the MSR Decision imposes a legal obligation to review that

Decision, with the next review due in 2026. This proposal introduces the relevant measures

resulting from the impact assessment carried out to address those review clauses. It preserves

the core strengths of the carbon market and its price signal as a driver for investments, while

adapting its design and introducing targeted simplifications to reduce administrative burden

and make the system more effective.

The leading role of the EU ETS to achieve economic modernisation and decarbonisation is

recognised by the importance of its linking agreements with close partners such as

Switzerland, pursuant to Council Decision (EU) 2018/219 of 23 January 2018, and the UK

with whom negotiations are under progress. Those agreements are key instruments to avoid

carbon and distortion of competition.

Ensuring a predictable carbon market for ETS sectors

The revision should align the EU ETS with the 2040 and 2050 climate targets, enabling a

more gradual decarbonisation pathway. It should also and take into account the agreement

found in the amendment of the European Climate Law, including to integrate permanent

carbon removals, taking into account residual hard-to-abate13 emissions notably in energy

intensive industries (EIIs), and fostering the deployment and availability of those technologies

at the required scale, kickstarting the market.

The European Climate Law also includes a possibility to use a limited quantity of high-quality

international credits to make an adequate contribution towards the economy-wide 2040 target,

starting in 2036. They can amount up to 5% of 1990 EU net GHG emissions, corresponding

to a domestic reduction in net GHG emissions of at least 85% compared to 1990 levels by

2040. A pilot period may be considered for 2031-2035. International credits should be

integrated into the future climate legislation in a way that achieves high ambition in a cost-

efficient way. The use of credits should support both the EU and non-EU countries in

achieving GHG reductions compatible with the Paris Agreement. The specific deployment of

international credits will be based on a thorough impact assessment and subject to the

development of Union law setting robust and high integrity criteria and other safeguards. This

proposal takes into account the purchase of these international credits to complement

domestic action, translating into additional domestic emission space for ETS sectors.

The MSR rules under the EU ETS aim to tackle structural supply-demand imbalances

between the available allowances to emit CO2 and the emissions of the companies covered. A

principle underlying the system’s design is that the market will gradually become smaller. As

a result, the EU ETS’s contribution to cost-effective emission reductions may be hampered by

increased market inefficiencies. This proposal therefore also reviews the MSR more

13 See Draghi Report, Part B, section ‘The root cause of the EU’s competitiveness gap’.

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comprehensively, complementing the Commission’s proposal of 1 April 202614, to continue

to ensure market stability, predictability and a smooth carbon price development.

Making the EU ETS a stronger innovation and investment engine driving competitiveness

A crucial objective of the proposal is to substantially increase investments in our energy

system and industry. Europe’s capacity to generate clean, homegrown and affordable energy,

in particular electricity, should be increased, replacing current expenditure on imported fossil

fuels with capital investment in economic modernisation. Over the coming decade and to

achieve climate neutrality by 2050, industry has to go through a significant transformation to

modernise, decarbonise and switch to cleaner and more energy-efficient technologies, for

example by electrifying, using hydrogen from renewable sources, deploying carbon capture,

utilisation and storage (CCUS), and generating carbon removals. At the same time, EU

industry needs to remain competitive in a global market and ensure quality jobs, in line with

the objectives of the Clean Industrial Deal. This transformation requires stepping up

investments substantially. This includes a skilled workforce capable of deploying the

technologies needed in relevant ETS sectors.

For this, a predictable ETS price signal and targeted use of its revenues are essential. The EU

ETS is a key financing mechanism for the green transition. Since 2013, it has raised over

EUR 270 billion, with approximately 75% allocated to Member States, and given free

allocations worth EUR 255 billion. To maximise the system’s climate impact, revenues must

be spent strategically on measures that accelerate decarbonisation and enhance industrial

competitiveness. Since June 2023, Member States have been required to spend 100% of ETS

revenues on climate and energy purposes and to ensure visibility of this spending. However,

transparency and effectiveness remain insufficient. Current spending patterns reveal critical

gaps: only a small fraction of revenues around 5%, directly supports industrial

decarbonisation in sectors such as steel, chemicals and fertilisers. Together, the industrial

sectors are responsible for about 47% of EU ETS emissions. Additionally, some investments

risk undermining climate neutrality by perpetuating dependencies on carbon-intensive

technologies, such as fossil fuel infrastructure, which could lead to long-term lock-in effects.

ETS revenues should be reinvested in innovation, clean tech and industrial decarbonisation of

ETS sectors at a much larger scale, at both EU and national level, to reward the frontrunners

in the transition and incentivise the industrial backbone of Europe. Improved spending should

be accompanied by greater visibility of the use of revenues, which is now limited.

The carbon price signal provides an incentive for industrial decarbonisation, and together with

the system of free allocation and the CBAM there is protection against carbon leakage. In

addition, carbon pricing works hand in hand with regulatory measures such as targets and

requirements related to energy efficiency, homegrown clean energy sources such as

renewable energy or decarbonised transport and industry. In many sectors (e.g. steel, cement

or chemicals), however, free allocation (together with the regulatory framework) has not been

conducive to driving transformational change and should be more clearly linked to much-

needed investments inside Europe, while in the near future, investments will still be lacking a

bankable business case. This is why the Clean Industrial Deal announced the Industrial

Decarbonisation Bank (IDB), with EUR 100 billion in funding, within the governance of the

future Competitiveness Fund. The IDB aims to promote the scale-up and roll-out of more

mature industrial decarbonisation projects, notably in EIIs across all Member States, to be

14 Proposal for a Decision of the European Parliament and of the Council amending Decision (EU)

2015/1814 as regards ceasing the invalidation of allowances in the market stability reserve (COM(2026)

153 final).

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funded mostly by reserving a certain share of ETS allowances15. To kick-start such

investments and drive long-term competitiveness, the ETS Investment Booster will be

available already before 2030 to ensure timely support and be designed so as to promote

solidarity. With the IDB focusing on scale-up and roll-out, addressing the commercial risks

faced by industrial decarbonisation projects, it is also necessary for the Innovation Fund to

continue to support the commercialisation of innovative and first-of-a-kind technology. The

EU ETS thus supports the objectives of the Clean Industrial Deal by providing a clear and

predictable carbon price, incentivising investment in decarbonisation solutions while

continuing to provide carbon-leakage protection and reinvesting the revenues the system

generates.

Dedicated mechanisms are ensuring continued solidarity with lower income Member States,

including the redistribution of 10% of auctioning revenues, the Modernisation Fund, and

guaranteed access to the ETS Investment Booster. They should also continue to assist lower-

income Member States in modernising their energy system and accelerating industrial

transformation.

Delivering a whole-of-economy transition

To deliver a whole-of-economy transition, all sectors need to contribute a fair share to the

EU’s climate targets. This includes applying an effective carbon price signal to the EU’s fair

share of aviation emissions . Aviation accounts for 2-3% of global CO2 emissions16 and is a

source of non-CO2 climate impacts at least as significant as those of CO2. Aviation’s share of

EU transport emissions today is 14%, or around 4% of the EU’s total CO2 emissions. By

2050, aviation’s share is expected to grow to around 90%17. Long-haul flights fuel this

growth, and they should be covered by a meaningful carbon price. Globally, the International

Civil Aviation Organization (ICAO) projects that international aviation emissions will

continue to grow18. The Carbon Offsetting and Reduction Scheme for International Aviation

(CORSIA) aims to offset most of that growth19. Aviation, like shipping, has important

decarbonisation challenges as a hard-to-abate sector, marked by long asset lifetimes,

significant capital intensity and a current scarcity of immediate alternatives to fossil fuels.

Maritime transport represents around 14% of total EU transport emissions, or around 4% of

total EU CO2 emissions. Its green transition will require the mobilisation of the whole EU

maritime value chain as well as substantial investment in enhancing vessel efficiency,

developing new sustainable propulsion technologies and scaling up the production and

15 The IDB will be placed within the governance of the future European Competitiveness Fund to ensure

that both funding instruments are complementary. The European Competitiveness Fund will also

support decarbonisation of EIIs. Considering the high investment needs of those sectors both

instruments are needed but should be designed as complementary in supporting technological

development, types of instruments offered and role in the project’s investment journey. This will be also

facilitated by the common governance framework. 16 EASA, European Aviation Environmental Report, 2025

https://www.easa.europa.eu/en/domains/environment/eaer/downloads#download-2025. 17 Source: Figure 76, Direct CO2 emissions from the EU transport sector by mode, Annex 8, Climate

Target Impact Assessment, and Section 1.5.5, page 97. https://eur-

lex.europa.eu/resource.html?uri=cellar:6c154426-c5a6-11ee-95d9-

01aa75ed71a1.0001.02/DOC_3&format=PDF. 18 ‘By 2050, global aviation will need to serve 12.4 billion passengers annually - nearly triple today’s

volume.’, https://www.icao.int/sites/default/files/publications/Aviation%20Budget%20Brochure/ICAO-

Budget-Brochure-eVersion-27Mar25.pdf. 19 ICAO notes that due to partial participation in CORSIA, international aviation emissions will continue

to grow above the CORSIA baseline level (~500 MtCO2 per year). Source: ICAO A42-WP/28 Report –

Technical Assessments in Support of the 2025 CORSIA Periodic Review,

https://www.icao.int/sites/default/files/Meetings/a42/Documents/WP/wp_028_en.pdf.

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distribution of sustainable renewable and low-carbon fuels, including by upgrading port and

energy infrastructure. Moreover, the International Maritime Organization (IMO) is

developing, a global measure to implement the IMO 2023 GHG strategy, which aims, among

other things, to reach net-zero emissions from international shipping by, or close to, 2050.

The EU ETS might need a mechanism that makes it possible to support the new global

measure once adopted, preventing, in particular, double payments but preserving the price

signal and incentives for ships calling at EU ports.

For aviation and maritime, complementary policies such as RefuelEU Aviation and FuelEU

Maritime work in synergy with the EU ETS’s multiple incentives supporting the uptake of

more sustainable fuels20. The Competitiveness Compass, the Clean Industrial Deal and the

EU’s Industrial Carbon Management strategy21 also set the objective to decarbonise the

economy by accelerating the transition to more circularity of materials and carbon, supporting

the EU’s economic security, resilience and competitiveness. The revision of the EU ETS

provides an opportunity to incentivise and scale up the circularity of carbon as a key

decarbonisation pathway for hard-to-abate sectors like cement, steel and chemicals and to

ensure the availability of alternative carbon feedstocks. The gradual inclusion of waste

incineration supports this objective by closing the loop, while supporting the business case for

more circularity of materials, reducing GHG emissions from waste disposal and generating

recycled materials displacing more carbon-intensive virgin materials. In addition to losing

valuable resources, waste can have significant negative impacts on human health and the

environment. For example, incinerating waste can contribute to air pollution, while landfills

might contaminate water and land. GHG emissions from municipal waste incineration are

significant at around 40 MtCO2eq fossil CO2 emissions per year but are currently not subject

to dedicated decarbonisation policies in most Member States. A comprehensive framework,

including the sector’s inclusion in the EU ETS and strengthened circular economy policies

under the upcoming Circular Economy Act22, is needed to support economy-wide circularity

and contribute to the decarbonisation of the sector.

As such, the review aims to: (i) ensure that the market remains efficient and creates an

incentive to invest in decarbonisation in the global context; and (ii) address specific

challenges faced by covered sectors to facilitate their uptake of available solutions to

decarbonise, while taking account of other legislative acts that facilitate the clean transition

and the competitiveness of EU industry.

Therefore, this proposal encompasses the below measures.

i. It aligns the system with the Union’s 2040 emission reduction target of -90%, adjusting the

EU ETS reduction trajectory from 2031. This change permits the continued issuance of

allowances into the 2040s.

ii. Takes into account the possible purchase of 260 million international credits to

complement domestic action and reducing it to -85% compared to 1990, translating into

additional domestic emission space in the ETS. This is operationalised through the

20 For aviation, ReFuelEU Aviation sets targets for fuel producers to supply an increasing share of

sustainable aviation fuels, starting with 2% of certain biofuels in 2025 and 6% in 2030 (of which 0.7%

synthetic fuels), and for airlines to uplift fuel. For the maritime sector, FuelEU Maritime sets maximum

limits for the yearly average GHG intensity of the energy used by ships above 5 000 gross tonnage

calling at European ports, regardless of their flag.

21 Communication from the Commission to the European Parliament, the Council, the European

Economic and Social Committee and the Committee of the Regions, Towards an ambitious Industrial

Carbon Management for the EU (COM/2024/62 final). 22 Regulation (EU) […./..] of the European Parliament and of the Council [Circular Economy Act] [OJ

reference to be added once adopted].

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establishment of an LRF aligned with the domestic ambition level resulting from the purchase

of international credits for the benefit of the ETS sectors and setting aside allowances to

purchase those international credits. In case insufficient high-quality and high-integrity, cost-

effective international credits are available, the LRF is aligned with the EU domestic ambition

of -90% by 2040.

iii. It integrates domestic permanent carbon removals into the EU ETS through the increase of

cap by an amount of allowances equivalent to the quantity of removals that will be bought by

the Commission, thus creating guaranteed additional emission space for the hardest-to-abate

sectors and supporting the scale-up of the carbon removals industry, while ensuring control of

the quality and quantity of the removals.

iv. It reforms the MSR to ensure a stable and liquid market and smooth price development

against the background of a shrinking market.

v. It extends free allocation and indirect carbon cost compensation beyond the current period,

while free allocation is made conditional on the submission of plans to invest in

decarbonisation in the EU as well as on the implementation of such decarbonisation

investments in the EU.

vi. It increases financial support to innovation and investment for decarbonisation, notably for

industrial decarbonisation, so a higher share of EU ETS revenues is returned to sectors

covered by the EU ETS. It sets up the IDB to provide EUR 100 billion in funding to industrial

decarbonisation projects.

vii. It extends the Innovation Fund in order to support the market introduction of low-carbon

innovation and make clean-tech industries more competitive.

viii. It strengthens requirements for Member States’s auction-revenue spendings, including by

introducing minimum spending on priority sectors and making visibility mandatory.

ix. It continues to provide solidarity via the Modernisation Fund as a means to support the

modernisation of energy systems and industrial decarbonisation in lower-income Member

States, while updating the eligibility criteria and distribution key.

x. It continues the redistribution of 10% of auction volume to lower-income Member States,

for reasons of solidarity and channelling these resources for climate purposes.

xi. It aims to achieve effective carbon pricing of the EU’s fair share of international transport

emissions through an appropriate application of the EU ETS to flights departing to the

immediate neighbourhood of the Union. This includes support for multilateralism through a

deduction mechanism of CORSIA offsetting costs, which avoids double pricing. For Iceland,

as regards the ETS scope as in force since 2023, the Commission would be favourable to an

extension of the existing mechanism in the Joint Committee Decision of three years.

xii. It establishes dedicated, direct support to maritime and aviation that promotes, in

particular, the uptake of EU-produced sustainable aviation and maritime fuels, clean

technologies and hydrogen.

xiii. It provides for a review of the EU ETS in the event of the adoption of an IMO global

measure to avoid the risk of double payments while preserving the environmental integrity of

the EU ETS.

xiv. It further addresses the risk of evasion in the maritime sector through new measures and

supports a level-playing field through a targeted extension of the ETS’s scope to specific

categories of small vessels (with a gross tonnage below 5 000 but not below 400).

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xv. It introduces targeted simplification measures to benefit the industry and public authorities

by reducing administrative compliance costs and enhancing the effectiveness of the system’s

implementation.

xvi. It integrates municipal waste incineration into the EU ETS. The point of accounting for

carbon capture and utilisation (CCU) is placed downstream for products and at fuel distributor

level for e-fuels. This enables a decarbonisation route for industries with hard-to-abate

emissions.

A new emissions trading system covering CO2 emissions from fuel combustion in buildings,

road transport and small industry (ETS2) was created in the 2023 revision of the ETS

Directive. ETS2 is excluded from the scope of this proposal as it will become fully

operational in 2028, its application is due for review by 2029, and any assessment of the

feasibility of integrating the sectors under ETS2 into the EU ETS is due by 2031.

• Consistency with existing policy provisions in the policy area

All sectors of the economy should contribute to the reduction of GHG emissions. The present

review of the EU ETS is the first part of a broad package of measures to ensure the EU is

prepared to achieve its 2040 climate ambition with a revised energy and climate framework,

while reaping all the benefits of the green transition and enhancing the EU’s competitiveness.

All initiatives in the package are closely interlinked and use common modelling and

assumptions, and each one depends on the design of the others. Emissions are distributed

across policy instruments according to considerations of cost-effectiveness, technological

viability and Member State specificities, including on their choice of homegrown clean

energy sources. The impact assessments supporting the EU ETS revision and forthcoming

proposals incorporate cross-sectoral analysis, expert and stakeholder input, and the

implications of recent geopolitical developments. They also reflect the objectives and

measures outlined in Member States’ national energy and climate plans (NECPs).

The analysis shows that achieving the required emissions reductions and carbon removals will

require a balanced policy mix, including targeted support measures, stable carbon pricing,

clear targets with appropriate flexibility, and streamlined yet effective regulation. These

principles underpin the policy design, supporting investment, innovation, and

competitiveness. The framework is further supported by a robust governance structure that

integrates planning, financing, cooperation, and progress monitoring, while strengthening

resilience to the growing impacts of climate change.

Given the EU’s enlargement ambitions, the framework’s design and implementation must

also consider the integration of candidate and potential candidate countries. Consideration

should be given in the accession process to how the EU ETS solidarity mechanisms and funds

should cover enlargement countries. Overall, it is aligned with the 2040 objectives, covers all

sectors of society, and maintains an appropriate balance between national and EU-level

legislation.

The proposal to revise the EU ETS is a key component of this framework, building on the

proposals for CO₂ emission standards for cars and vans adopted in December 2025 and for the

revision of the MSR adopted in April 2026. The EU ETS will continue to drive emission

reductions and economic transformation throughout the 2030s. The review aims to preserve

the effectiveness of the carbon market while refining its design to better support industrial

competitiveness, decarbonisation, innovation, investment, and Europe’s strategic resilience.

For the broader framework of climate and energy policies, a strong and predictable carbon

price remains essential to encourage investment in homegrown low-carbon energy,

electrification, and clean technologies, while providing long-term certainty for investors.

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Additional legislative proposals on national targets as well as the use of international credits,

are expected later in 2026.

• Consistency with other Union policies

The Clean Industrial Deal brings together climate action and competitiveness under one

overarching growth strategy. It is a commitment to accelerate decarbonisation,

reindustrialisation and innovation, all at the same time, while making Europe resilient. It aims

to present European industry with a stronger business case for large climate-neutral

investments in EIIs and clean tech. The review of the EU ETS plays a central role in

achieving these objectives and is therefore consistent with the broader set of Union policies

that are part of the Clean Industrial Deal.

Meeting the EU 2040 climate targets and implementing related policies will require sustained

investment in modernising the energy system over the coming decades. Alongside initiatives

such as the Clean Industrial Deal, the Industrial Accelerator Act23, the Clean Energy

Investment strategy24, the European Grids Package25, and the Net-Zero Industry Act26, the

2040 framework aims to provide the predictability needed to accelerate energy efficiency,

electrification, and investment in clean technologies across buildings, transport, industry, and

energy networks. Industrial decarbonisation will also depend on carbon capture, hydrogen,

and other innovative technologies, with private investment playing a leading role.

The EU ETS contributes to these objectives. Firstly, it aims to create a carbon price signal that

rewards low-carbon investments. The ETS puts a price on CO₂ emissions. As the cost of

emitting carbon rises, investments in electrification and climate-neutral production processes

become more economically attractive than traditional fossil-based energy sources and high-

emission production methods.

Secondly, it aims to generate revenues that finance decarbonisation. The Industrial

Accelerator Act, presented in March 2026, provides a clear framework to drive investment

and innovation in sectors where Europe can maintain or build global leadership. Public

support will be essential to mobilise private finance to this end. The reinvestment of EU and

national ETS revenues in the industrial transition as envisaged by this proposal is consistent

with these objectives. In particular, this proposal increases funding for industrial

decarbonisation and sustainable fuels, helping to accelerate electrification, promote clean

technologies, strengthen Europe’s industrial base, and create high-quality jobs.

Building on the recommendations of the Draghi report, the Commission proposes an ETS

Investment Booster as an early phase of the IDB, which was announced as part of the Clean

Industrial Deal. Becoming operational once the ETS legislative process has been concluded,

the ETS Investment Booster will support low-carbon investments in EIIs through a predefined

carbon premium. From 2031, the second phase of the IDB will use competitive tools such as

23 Proposal for a Regulation of the European Parliament and of the Council establishing a framework of

measures for the acceleration of industrial capacity and decarbonisation in strategic sectors and

amending Regulations (EU) 2018/1724, (EU) 2024/1735 and (EU) 2024/3110 (COM(2026) 100 final). 24 Communication from the Commission to the European Parliament, the Council, the European

Economic and Social Committee and the Committee of the Regions, Clean Energy Investment Strategy

(COM/2026/116 final). 25 Communication from the Commission to the European Parliament, the Council, the European

Economic and Social Committee and the Committee of the Regions, ‘European Grids Package’,

(COM/2025/1005 final). 26 Regulation (EU) 2024/1735 of the European Parliament and of the Council of 13 June 2024 on

establishing a framework of measures for strengthening Europe’s net-zero technology manufacturing

ecosystem and amending Regulation (EU) 2018/1724 (OJ L, 2024/1735, 28.6.2024, ELI:

http://data.europa.eu/eli/reg/2024/1735/oj).

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contracts for difference, as part of a broader objective to mobilise EUR 100 billion for

industrial decarbonisation.

This proposal also extends the Innovation Fund and the Modernisation Fund. Endowed with

200 million allowances, the Innovation Fund will support innovative industrial technologies

for industry and clean-tech manufacturing. The Modernisation Fund will channel the revenues

resulting from the auctioning of 2,5% of the Art. 9 cap to lower-income Member States to

modernise energy infrastructure, expand renewables, strengthen grids, improve energy

efficiency, and support technologies such as carbon capture and storage (CCS).

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

Articles 191, 192 and 193 of the Treaty on the Functioning of the European Union empower

the EU to act to preserve, protect and improve the quality of the environment; protect human

health; and promote measures at the international level to deal with regional or worldwide

environmental problems. The legal basis of this initiative is in Article 192(1), as this initiative

is action being taken to combat climate change and to serve the other environmental

objectives specified in Article 191. The ETS has been operating on this legal basis since 2003.

The European Parliament and the Council have adopted all amendments to the ETS Directive

on this legal basis.

• Subsidiarity (for non-exclusive competence)

Climate change is a trans-boundary problem and both international and EU action can

effectively complement and reinforce regional, national and local action. Adjusting the ETS

to the 2040 target for EU GHG reductions will affect many sectors across the EU economy.

Coordinated action at EU level is therefore indispensable and has a much bigger chance of

leading to the necessary transformation, acting as a strong driver for cost-effective change and

upward convergence. Furthermore, many of the policy aspects assessed in this initiative have

an important single market dimension, in particular the options related to the carbon leakage

protection and the low-carbon funding mechanisms. EU action can also inspire and promote

the development of other market-based measures.

As a carbon market, the ETS incentivises emission reductions made by cost-effective

solutions first across the activities it covers, achieving greater efficiency by virtue of its scale.

Implementing a similar measure nationally would result in smaller, fragmented carbon

markets, risking distortions of competition and likely leading to higher overall abatement

costs. The same logic holds for extending carbon pricing to cover new sectors.

• Proportionality

The analysis of the impact assessment accompanying this proposal show that the proposal

complies with the proportionality principle. This is because it does not go beyond what is

necessary in order to achieve the objectives of implementing the EU’s GHG emission

reduction target for 2040 in a cost-effective manner while at the same time ensuring the

proper functioning of the single market and the competitiveness of the ETS sectors.

The European Parliament and the Council have endorsed an overall economy-wide and

domestic reduction in GHG emissions of 90% compared with 1990 levels by 2040, with a

possibility to use a limited quantity of high-quality international credits to make an ‘adequate

contribution’ towards the 2040 target, starting in 2036. This proposal covers a large part of

these GHG emissions and revises the ETS Directive in order to achieve this objective.

• Choice of the instrument

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The objectives of this proposal can be best pursued through a directive. This is the most

appropriate legal instrument to make amendments to the existing ETS Directive.

A directive requires Member States to achieve the objectives and incorporate the measures

into their national substantive and procedural law systems. This approach gives the Member

States more freedom when implementing an EU measure than does a regulation, in that

Member States are left the choice of the most appropriate means of implementing the

measures in the directive. This allows Member States to ensure that the amended rules are

consistent with their existing substantive and procedural legal framework implementing the

EU ETS, in particular regulating permits for installations as well as enforcement measures

and penalties.

A directive is also the appropriate instrument to amend the MSR Decision because the review

of this legal instrument is closely related to the effects on market stability of the adjustments

proposed to the EU ETS.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER

CONSULTATIONS AND IMPACT ASSESSMENTS

• Ex post evaluations / fitness checks of existing legislation

The evaluation of the ETS Directive and the MSR Decision (see Annex 15 to the impact

assessment) concluded that the EU ETS is very much aligned with the EU’s broader climate

policies, with ETS sectors making a greater contribution to the achievement of the EU’s GHG

reduction target for 2030 as it was more economically efficient for those sectors to do so than

for non-ETS sectors. There was evidence to suggest that the EU ETS has been effective in

driving the overall emission reduction trend observed in the EU.

During the evaluation period, total emissions from stationary installations declined

significantly, consistent with and exceeding the trajectory required to meet the target of

achieving a 43% reduction compared with 2005 levels by 2030 set by the 2018 revision of the

ETS Directive. The strengthened CO2 price signal under Phase IV (2021-2030) has likely

incentivised higher levels of overall abatement as reforms were carried out to address the

structural imbalance in the demand and supply of allowances that previously undermined the

performance of the EU ETS in Phase III (2013-2020). The uptake of abatement options is

likely to have been higher in the power sector than in industrial sectors. In part, this is due to

the further complementary measures that have been put in place to support the

decarbonisation of electricity generation across the EU, as well the absence of free allocation,

which would have reduced the impact of carbon price for industrial emitters.

The introduction of the MSR has made the EU ETS considerably more consistent with the

wider policy framework (i.e. external coherence). It has addressed the long-criticised

‘waterbed effect’ by allowing allowance supply to respond to changes in demand, including

those induced by overlapping policies like those set out in the Renewable Energy Directive27

and the Energy Efficiency Directive28. In recent years, reforms of the EU ETS, such as

reforms of free allocation, have started to address issues previously identified with regard to

the consistency between different design elements (i.e. internal coherence). For example, the

27 Directive (EU) 2023/2413 of the European Parliament and of the Council of 18 October 2023 amending

Directive (EU) 2018/2001, Regulation (EU) 2018/1999 and Directive 98/70/EC as regards the

promotion of energy from renewable sources, and repealing Council Directive (EU) 2015/652 (OJ L,

2023/2413, 31.10.2023, ELI: http://data.europa.eu/eli/dir/2023/2413/oj). 28 Directive (EU) 2023/1791 of the European Parliament and of the Council of 13 September 2023 on

energy efficiency and amending Regulation (EU) 2023/955 (recast) (OJ L 231, 20.9.2023, pp. 1–111,

ELI: http://data.europa.eu/eli/dir/2023/1791/oj).

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setting of more ambitious benchmarks for the provision of free allocation helps to enhance the

impact of the CO2 price signal to provide incentives for decarbonisation while striking a

balance in protecting industry from the risk of carbon leakage. Evidence from the literature

supports the argument that the implementation of the revised ETS Directive since 2018 has

provided considerable EU added value to Member States and it has likely resulted in more

cost-effective mitigation than would have been provided if action had been taken only at the

national level.

Overall, the evaluation confirms that the ETS has successfully achieved its objectives so far

and that it has been a key instrument in delivering on the EU climate objectives. However, the

evaluation also points to areas of potential improvement, such as better balancing the need to

prevent carbon leakage with ensuring continued incentives for investments in decarbonisation,

ensuring a more efficient monitoring, reporting, verification and accreditation (MRVA)

system, and strengthening the security measures for the Union Registry.

The MSR was adopted in 2015 to reduce excess allowances in the EU ETS that built up over

Phases II (2008-2012) and III (2013-2020) and to mitigate the build-up of new demand-

supply imbalances in order to sustainably strengthen the resilience of the EU ETS. The

evaluation showed that this instrument was effective in reducing the historical demand-supply

imbalance in the allowance market. It was also effective in mitigating price shocks resulting

from the COVID-19 pandemic and the energy price crisis. Most notably, the MSR credibly

signalled the commitment of the EU to the EU ETS, thereby boosting confidence in the

market.

• Stakeholder consultations

The Commission consulted national, regional and local public authorities; private-sector

stakeholders including individual companies and business associations; non-governmental

and environmental organisations; academic and research institutions; trade unions; and

individuals, at various steps during the development of this proposal.

The revision of the ETS Directive and the MSR Decision builds upon the feedback gathered

as part of a back-to-back evaluation of the current framework and an impact assessment for

the review. The main objective of the consultation was to gather stakeholder views on options

for provisions on carbon leakage, carbon removals, the aviation and maritime sectors, waste

management processes, non-permanent CCU, thermal input thresholds, linking with other

carbon markets, and the MSR. The consultation further assessed the use of revenues and low-

carbon support mechanisms. The Commission also gathered inputs on possible simplification

measures.

The Commission organised an online public consultation with a questionnaire on each of the

areas under evaluation and review, receiving a total of 540 responses29 while collecting more

than 400 position papers and feedback inputs to the call for evidence from across different

stakeholder groups. In addition, targeted interviews were conducted and the Commission

participated in multiple (virtual) bilateral and multilateral stakeholder meetings and

conferences to discuss the revision of the EU ETS, including with companies and business

associations across different sectors, trade unions, non-governmental organisations and public

authorities of Member States. To support the revision in relation to maritime-related topics, a

joint meeting of the European Sustainable Shipping Forum sub-group on the implementation

of MRV and ETS Maritime (ESSF) and the Climate Change Expert Group (CCEG Maritime)

29 The details of the public consultation can be found at: EU emissions trading system for maritime,

aviation and stationary installations, and market stability reserve – review.

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was held. Finally, the Commission also instructed contractors30 to collect views and inputs on

the implementation of MRVA rules for stationary installations and maritime operators

through detailed questionnaires.

In parallel, the Commission also organised a targeted workshop on the EU ETS with over 50

representatives from stationary installations across the EU on 29 January 2026. It focused on

experiences with practical implementation and identification of areas for simplification and

streamlining of compliance processes and requirements31. Finally, the Commission also

organised a high-level stakeholder roundtable on the review of the EU ETS on 12 May 2026.

The round table complemented the public consultation and gathered additional input on the

policy priorities to guide the upcoming review of the EU ETS and the MSR for the 2031-2040

period and the complementary instruments needed to make decarbonisation a driver of EU

competitiveness and resilience.

The results of the consultation activities are reported in the impact assessment and evaluation

report accompanying this proposal and have been taken into account for the current proposal

to the extent possible.

In general, the public consultations showed broad support for the EU ETS as a policy

instrument. Stakeholders generally support ensuring consistency between the EU ETS and the

2040 climate target set in the European Climate Law, in order to continue to contribute to

emission reductions in the most cost-effective and economically efficient manner while

preserving competitiveness. To achieve consistency with the 2040 target, many stakeholders

consider the downward adjustment of the linear reduction factor important to contain carbon

prices and improve market predictability. At the same time, many also consider a robust price

signal important for investment certainty. Both objectives are reflected in this proposal.

To address the risk of carbon leakage for sectors not covered by CBAM, there is overall broad

support for continuing free allocation, in particular among industry stakeholders. Making

continued free allocation conditional on decarbonisation investments is mainly supported by

the energy sector and civil society. The proposal combines the continuation of free allocation

with making a part conditional on decarbonisation investments to strike a balance between

preventing carbon leakage and strengthening incentives to invest in decarbonisation measures.

In addition, a large majority of stakeholders support the proposed continuation of indirect cost

compensation beyond 2030 to address the risk of carbon leakage from carbon costs passed on

in electricity prices. Only some respondents from civil society opposed continuing indirect

cost compensation.

On industrial decarbonisation support, a large majority of stakeholders across all stakeholder

groups support the creation of an IDB to support industrial decarbonisation efforts, with a

toolbox of funding instruments to tailor support to changing priorities and needs. This is duly

reflected in the proposal. The continuation of the Innovation Fund and Modernisation Fund is

also generally welcomed by stakeholders. This is reflected in the proposal by continuing

support for investments in modernising energy systems and energy efficiency under the

Modernisation Fund, while improving and simplifying some aspects of the Innovation Fund

without making fundamental changes to its operation and objectives.

As regards carbon removals, the proposal reflects the view expressed by a large majority of

stakeholders that domestic permanent carbon removals should be included in the EU ETS,

with safeguards to ensure that these do not deter necessary emission reduction. Only some

30 Ricardo Nederland B.V; Viegand Maagøe A/S and SQ Consult. 31 European Commission: Reality check – Commission takes stock of ETS implementation with stationary

installations 2 February 2026.

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respondents from the private sector and from civil society argued for, respectively, also

including temporary carbon removals or not including any carbon removals. Opinions on the

specific arrangements for integration through a central EU public authority were mixed. The

proposal includes this approach to provide both certainty for ETS sectors on the gross

emission space available and predictability of demand for carbon removals, benefiting the

carbon removal industry. This would support enhanced liquidity in the market and the uptake

of such technologies, while ensuring environmental integrity and reducing mitigation

deterrence with a limited integration of CCS-based domestic permanent Carbon Removals

and Carbon Farming (CRCF)-certified removals, and with low administrative cost for ETS

sectors that keep trading only EU allowances (EUAs).

Across stakeholder groups, the MSR is widely considered as having been effective in

addressing the surplus on the market. However, a majority of stakeholders, mainly from

industry and energy sectors, support changes to its parameters to strengthen price

predictability and increase liquidity in view of the expected future tightening of the market,

while some stakeholders from civil society generally prefer maintaining the current approach.

The changes most frequently proposed were ending the invalidation rule and dynamically

adjusting the parameters to reflect the market. These changes are duly reflected in this

proposal and the targeted proposal to amend the MSR of April 2026, which stops the

invalidation mechanism, allowing allowances in the reserve above 400 million to be kept as a

buffer that can support market stability.

With regard to aviation, there is broad support for strengthening its contribution to

decarbonisation, and a majority of stakeholders from both business sectors and civil society

consider that the current approach to international flights outside Europe does not adequately

address emissions from those flights. The proposal contributes to addressing this by applying

an effective carbon price also to a part of the EU’s fair share of international aviation

emissions, in a way that is consistent with the scope of application of ReFuelEU Aviation.

Stakeholders from the business and public sectors also identified increased support for

sustainable aviation fuel (SAF) as a key priority. The proposal duly reflects this by increasing

ETS support for SAF uptake, while ensuring that Member States still receive ETS revenues to

finance additional decarbonisation measures.

On maritime transport, stakeholders broadly agreed that ETS inclusion successfully drives

decarbonisation, while identifying opportunities to improve interaction with international

measures, enhance competitiveness, include smaller vessels, and simplify the rules. The

proposal contributes to these objectives by taking measures to reduce the risk of evasion, and

by adapting the review clause to notably address the risk of double payments taking into

consideration future IMO global measures. The proposal also introduces an ETS-funded

mechanism to support the uptake of sustainable fuels and clean propulsion technologies. A

targeted scope extension to certain categories of smaller vessels is proposed, reflecting the

needed balance between environmental benefits and implementation costs. The proposal

includes a time-limited extension of the derogations that are necessary for connectivity and

socio-economic reasons. This is to accompanied by a MRV Maritime Regulation Proposal to

improve and simplify the implemenation of the system.

With regard to the waste management sector, a majority of stakeholders support the inclusion

of municipal waste incineration in the EU ETS while excluding hazardous waste incineration,

as reflected in this proposal, to incentivise emission reduction, the circular economy, and the

uptake of carbon removals and CCU. This was generally supported by stakeholders from

industry and civil society, with the exception of stakeholders from the waste incineration

sector.

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A majority of stakeholders is in favour of incentivising CCU by adjusting the surrender

obligation for emissions captured and used in products without permanent storage, mainly

obtaining support from the energy sector and manufacturing industry. Opinions are more

mixed on moving the surrender obligation fully downstream, with some stakeholders

highlighting the need for regulatory consistency for e-fuels. The proposal reflects these

considerations by implementing hybrid downstream and midstream accounting to incentivise

CCU in upstream installations and the use of CCU-based carbon in downstream products.

• Collection and use of expertise

This proposal builds upon evidence gathered in the impact assessment for the previous ETS

revision32 concluded in 2023, the impact assessment accompanying the 2040 Climate Target

Communication and Proposal33 and any relevant evidence compiled in other concurrent

initiatives. It builds on emissions data and experiences from the implementation of the EU

monitoring, reporting and verification systems.

This proposal makes use of a collection of integrated modelling tools covering the entire

GHG emissions of the EU economy. These tools are used to produce a set of scenarios

reflecting self-consistent policy options aligned with the Union’s 2040 climate target.

In addition, the Commission has used the growing body of peer-reviewed empirical research

on the EU ETS, together with several support contracts. Additional support work was carried

out by Viegand Maagoe and SQ Consult for the evaluation of the MRVA system. For the

maritime and aviation sectors, sector-specific studies were carried out by Ricardo34.

• Impact assessment

This proposal is accompanied by an impact assessment report, a draft of which was submitted

to the Regulatory Scrutiny Board (RSB) on 23 March 2026. The RSB issued a positive

opinion with reservations on 15 April 202635. The RSB highlighted five key shortcomings in

the draft. First, it considered that the costs and benefits of the EU ETS during the evaluation

period, including the distribution of costs, carbon price impacts, and effects of free allowances

on emissions reductions and investments had been insufficiently quantified. Second, the

problem definition lacked clarity, and its objectives had not been framed in SMART

(Specific, Measurable, Achievable, Relevant, Time-bound) terms. Third, the baseline scenario

was unclear, particularly as regards the way it aligns with the 2040 Climate Target impact

assessment. Fourth, the rationale for combining measures into policy options needed

strengthening, with further analysis of competitiveness, affordability, and interactions

between proposals required. Fifth, the cost-benefit comparisons of policy options lack detail,

hindering a robust assessment of effectiveness and efficiency. The impact assessment report

was adjusted to address the RSB’s comments.

32 SWD(2021) 601.

33 SWD(2024) 63. 34 Ricardo, ‘Support for the 2026 review of the ETS directive for maritime, report prepared for DG

CLIMA, publication upcoming’, (2026); Ricardo et al., ‘Supporting study for the implementation of the

ETS Directive and MRV requirements for maritime transport’, (2024); and more specifically ‘MRV

maritime evaluation support’ part (2026): publication upcoming; Ricardo, ‘Opportunities of the Green

Transition for the EU Maritime Industry and Value Chain’, (2026) publication upcoming. Ricardo,

‘Support for the review by the Commission concerning the implementation of ICAO’s CORSIA, and

for Commission reports on certain types of flights, social impacts, and air connectivity of islands,

remote territories and Iceland’, prepared for DG CLIMA, (2025) publication forthcoming. 35 ARES(2026)3999719.

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The evaluation was strengthened to show the different developments, and the impact of

carbon price on industry and the power sector. Further evidence was added of fuel switching

and the role of the ETS in reducing coal use, and on abatement costs for the main sectors,

marginal abatement costs and the link to ETS price, and the results from an additional

literature review on the costs and benefits attributable to the ETS was included. Additional

information was included, from literature and stakeholders, on the competitiveness impacts of

the ETS. The evaluation was further developed to include more information on the emission

reductions and the cost pass-through for the different sectors.

Regarding the impact assessment, the problem definition was clarified, and the objectives that

had not been framed in SMART terms were reframed in those terms (SO1.1.2, SO2.1.2,

SO.1.1.3 and SO1.3.1). The problem drivers were quantified where possible and further

qualified where not. Explanations were added on the key differences between the baseline

scenario, the 85% target run, and the proposal on the EU climate target for 2040. More

information was provided on investment needs and their trajectory, on the impacts of options

for the cap (CAP3 vs CAP1), differentiated between energy intensive and other industry

sectors, as well on the technologies required their technical readiness levels. The key trade-

offs between the options and the most significant measures that would drive the overall

impact for each of the three policy options were identified. The report was accompanied by

more information on key modelling assumptions and improved accessibility for policymakers

through streamlining of repetitive or unsupported claims. In addition, Appendix IV of the

evaluation was included with an overview table of the costs and benefits identified in it.

Finally, smaller inconsistencies identified by the RSB across the documents were corrected.

Sections 5 to 7 of the accompanying impact assessment explain the policy alternatives

examined, compare them and explain why the final proposal was considered to be the best

policy choice. In Sections 6 and 7 and in Annex 3, an explanation of the main economic,

social and environmental impacts of the preferred option, and who would be affected and

how, is set out, together with quantitative estimates of benefits and costs where possible.

Regarding the option chosen for the ETS cap, the final policy proposal deviates from the

options assessed in the impact assessment.. The impacts are explained in Section 6.2.3.1. and

Annex 8-1 on the cap.

As outlined in the stakeholder consultations section above, the open public consultation also

received more than 400 submissions in response to the call for evidence, including both

position papers and feedback, provided by different stakeholder groups. This is further

explained in Annex 2 of the accompanying impact assessment.

The impact assessment includes the consistency check of Article 6(4) of the European

Climate Law, which requires the Commission to assess the consistency of any EU draft

measure or legislative proposal with the Climate Law’s objectives, such as the EU’s climate-

neutrality objective. The impact assessment focuses on the analysis of the climate impacts of

the measures. It is based on the best available science, uses two economic modelling tools,

and examines the cost-efficiency of each policy option. The assessment compares the impacts

of the measures against a baseline scenario and tests sensitivity to key assumptions. The

legislative proposal is fully aligned with the climate-neutrality objective set out in the

European Climate Law, as the alignment of the ETS towards that objective and the

intermediate 2040 target is its core goal. Where the measures introduce uncertainty about

reaching the net climate contribution of the EU ETS (carbon removals integration with a pre-

increase of the cap) or potentially create loopholes in the accounting of emissions

(downstream accounting of CCU), the level of risk is assessed and justified by reference to

the achievement of the climate objectives more broadly, and the use of mitigating tools. As

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regards removals, the measures are justified to achieve the scale-up of removals and avoid

carbon leakage, and risks are mitigated by providing a sufficient budget for the purchase of

removals and a review clause. As regards CCU, the risks are justified to incentivise CCU,

while the proposal introduces mitigation measures in case of loopholes.

• Regulatory fitness and simplification

Since the revision of the ETS Directive in 2018, a number of simplifications have been

introduced. Article 27a was added to the ETS Directive, allowing Member States to exclude

installations emitting less than 2 500 tCO2e per year. In addition, a number of simplifications,

and clarifications have been made through amendments to the Monitoring and Reporting

Regulation (Commission Implementing Regulation 2018/2066)36, and standardised

methodologies and tools have been developed to facilitate implementation. These measures

are discussed further in the evaluation report accompanying this impact assessment, while a

number of possible measures for additional streamlining and simplification have been

proposed (see Annex 15, Section 9.4.4.2).

Several of the measures in this proposal covering emissions from stationary installations

generally do not involve simplification, since they are considering expanding the scope of the

EU ETS. However, they entail simplification more broadly, as EU-wide climate action should

prevent a piecemeal approach wherein national or subnational measures add complexity to the

single market. In addition, the carbon-leakage prevention measures proposed simplify the

provision of free allocation by not updating the carbon-leakage list for Phase V (2031-2040),

thereby eliminating administrative burden for operators. The proposed option of expanding

conditionality in free allocation would involve an increase in administrative effort, which has

to be weighed against the environmental benefits of conditionality and the value of free

allocation (see Section 6.2.1.6 of the impact assessment). The impact assessment (see Annex

12) considers the case for including a discussion of whether to include more small

installations in the EU ETS by lowering the 20 MW thermal capacity threshold. However, in

line with the impact assessment, this proposal excludes such an expansion on the basis that it

would not be proportionate, since most of the relevant emissions will be covered by EU

ETS2.

The package introduces incremental improvements through simplification initiatives with the

aim of implementing the system in a harmonised and robust way, minimising existing

duplications and delivering efficiency gains in respect of the MRV Maritime Regulation. This

is in line with the evaluation (see Annex 15, Section 8.5 of the accompanying impact

assessment), which concluded that the incremental improvements proposed would be better

than a structural overhaul of the MRV system, considering that the MRV system functions as

a robust framework, and has successfully handled the changes stemming from the 2023

revision without compromising overall data quality or usability.

Policy measure SI1 for maritime ‘Simplification, and targeted enhancement measures’

includes specific provisions to simplify the MRV Maritime system which would enable

shipping companies to exploit untapped synergies, minimise undue burden, and ultimately

reduce administrative compliance costs. Among other things, the measure would ensure that

one entity is responsible for compliance in respect of the emissions of a given ship under the

ETS/MRV Maritime and the FuelEU Maritime systems and that the monitoring-and-

reporting-only-once principle is fully implemented through a shared common MRV

36 Commission Implementing Regulation (EU) 2018/2066 of 19 December 2018 on the monitoring and

reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament

and of the Council and amending Commission Regulation (EU) No 601/2012 (OJ L 334, 31.12.2018,

pp. 1–93, ELI: http://data.europa.eu/eli/reg_impl/2018/2066/oj).

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compliance cycle. The accompanying impact assessment estimates that simplification

elements for the maritime sector would mean annual savings of between 10% and 20% of

current annual MRV administrative compliance costs for shipping companies.

Simplification is also proposed for aviation, in particular for smaller operators, in respect of

whom the definition of commercial status is removed, and replaced by a straightforward

emissions threshold that applies to all operators equally. Newly covered operators, and the

increased number of existing operators with low activity, due to an increase of the relevant

threshold, can rely on simplified monitoring and reporting and a waiver of verification.

Excluding operators with a very low EU ETS surrender obligation ensures that the

administrative burden on airlines and administering authorities remains limited, without

compromising environmental ambition.

• Fundamental rights

The proposal respects fundamental rights and, in particular, observes the principles of the

Charter of Fundamental Rights of the European Union. In particular, it contributes to the

objective of a high level of environmental protection in accordance with the principle of

sustainable development as laid down in Article 37 of the Charter37.

4. BUDGETARY IMPLICATIONS

The budgetary implications of the initiative and the human and administrative resources

required are set out in the financial statement showing the budgetary implications.

5. OTHER ELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

The Commission will continue to monitor and evaluate the functioning of the ETS in its

annual Carbon Market Report, as provided under Article 10(5) of the ETS Directive. The

Carbon Market Report will cover the impacts of the current revision of the ETS. It relies on

the analysis of the evaluation of progress on the application of the ETS Directive that is

regulated in Article 21 of the ETS Directive, and which requires Member States to report to

the Commission on issues including the allocation of allowances, operation of the Registry,

application of monitoring and reporting, verification and accreditation and issues relating to

compliance. The provisions on the annual Carbon Market Report and Member States

reporting also apply to the sectors to which the ETS has been extended. The MRV data

obtained through the regulation of the new sectors will be a key source of information for the

Commission to evaluate progress in the sectors concerned.

With respect to maritime transport, the Commission will rely on data collected through the

EU maritime transport MRV system and on analysis from the annual report on GHG

emissions from maritime transport, which provides aggregated and explained results. The

integrated governance and monitoring process under the Regulation (EU) 2018/1999 on the

Governance of the Energy Union and Climate action38 is also expected to ensure that climate

37 OJ C 326, 26.10.2012, p. 391. 38 Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the

Governance of the Energy Union and Climate Action, amending Regulations (EC) No 663/2009 and

(EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC,

2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and

of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No

525/2013 of the European Parliament and of the Council (OJ L 328, 21.12.2018, pp. 1–77, ELI:

http://data.europa.eu/eli/reg/2018/1999/oj).

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and energy-related actions at European, regional, national and local level, including the ETS,

contribute to EU climate neutrality and the Energy Union’s objectives. Several market

analysts closely follow various aspects of the carbon market, and the Commission will

continue to monitor their work.

The Commission is in regular contact with stakeholders and is therefore alert to their views

and concerns about the functioning of the ETS. ETS-related matters are discussed in a

dedicated forum, the Climate Change Expert Group (CCEG), which brings together Member

States’ competent authorities, industry associations and NGOs, and the Commission. In its

different formations, the CCEG discusses the implementation of free allocation, auctioning

and issues related to the functioning of the Union Registry, among other aspects. In addition,

the ETS Compliance Forum provides the competent authorities of all ETS countries (the 27

Member States, Norway, Iceland and Liechtenstein) with a platform for sharing information,

learning and experience, leading to effective implementation of the ETS. The forum organises

targeted events, such as the Compliance Forum Conference, which is held annually with the

aim of sharing experiences and facilitating dialogue among Member States’ competent

authorities, as well as task forces dedicated to specific topics and training events. National

accreditation bodies and verifiers are sometimes invited to participate in the activities of the

ETS Compliance Forum. Furthermore, the Technical Working Group on ETS MRVA brings

together representatives of Member States’ competent authorities to share experiences and

suggestions concerning the effective and efficient implementation of Commission

Implementing Regulation (EU) No 2018/2066 (Monitoring and Reporting Regulation) and

Commission Implementing Regulation (EU) No. 2018/2067 (Accreditation and Verification

Regulation)39 and to discuss potential updates and improvements to the ETS MRVA

framework.

• Explanatory documents (for directives)

Member States have undertaken to send the notification of their transposition measures with

one or more documents explaining how the components of a directive and the corresponding

parts of national transposition instruments relate to each other, in justified cases. This is

considered to be justified for this proposal, since targeted amendments will be required to be

made to national laws, and these will have to be identified, as will those provisions in respect

of which transposition was not considered necessary.

• Detailed explanation of the specific provisions of the proposal

The main elements of the ETS Directive which have been amended are the following:

• Cap: to align the system with the Union’s 2040 emission reduction target of -

90%, it is proposed to amend Article 9 of the ETS Directive in order to adjust

the EU ETS trajectory from 2031 onwards. This change would allow a slower

annual decline and continued issuance of allowances into the 2040s.

• International credits: it is proposed to consider the planned purchase of high-

integrity international credits from 2036, reducing the need for domestic

abatement of up to 5 percentage points in 2040 while ensuring cost-efficiency

and alignment with the Paris Agreement. It is proposed to lower the EU ETS

cap to reflect this adjustment, with a reduced LRF from 2036 aligned with

39 Commission Implementing Regulation (EU) 2018/2067 of 19 December 2018 on the verification of

data and on the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament

and of the Council (OJ L 334, 31.12.2018, pp. 94–134, ELI:

http://data.europa.eu/eli/reg_impl/2018/2067/oj).

EN 20 EN

reaching an ambition of 85% EU domestic emission reductions by 2040 and set

aside allowances to fund the purchase of the amount of international credits

(260 Mt) corresponding to the EU ETS ambition reduction. A fallback

mechanism is proposed to preserve the environmental integrity by reverting to

a trajectory for ETS sectors aligned with an EU domestic reduction of 90% by

2040 in the event high-quality and high-integrity, cost-effective international

credits are not available, subject to the report from the Commission on the

development of a high-quality and high-integrity international credit market,

taking into account the criteria set out in Regulation 2021/1119/EU, and the

contribution of these credits to the climate ambition of the ETS sectors (see

proposed new Article 9b).

• Carbon removals: it is proposed to introduce in the ETS Directivea new

Article 9c incorporating permanent carbon removals into the EU ETS by

increasing the cap by the number of allowances corresponding to the CRCF

domestic permanent biogenic emissions capture with carbon storage (BioCCS)

and direct air capture with carbon storage (DACCS) removal units (1:1) that

the Commission is mandated to purchase. These newly created allowances

would be assigned for the purchase of the removals. It is proposed to allocate

additional allowances to the Commission to address the price gap between

removals and allowances. The net EU ETS target would be calculated as the

gross emissions (corresponding to the total amount of allowances) minus the

amount removals planned to be purchased. To facilitate operator’s use of own

removals, it is proposed to allow operators, shipping companies and aircraft

operators, if relevant, to compensate their own fossil emissions with CRCF-

certified BioCCS removals that they themselves generate (Article 14(1a)) This

compensation mechanism would not go beyond zero – it cannot generate

negative emissions and the obtention of EUAs – and requires an adjustment

mechanism to the allowances assigned for the purchase of carbon removals and

to the carbon removals that are to be purchased, to prevent the total emission

space from increasing beyond the limit implied by the integration through the

purchasing programme.

• Industrial Decarbonisation Bank: as of 2028,it is proposed toestablish the

Industrial Decarbonisation Bank as an EU-level entity to support the scaling-up

and deployment of technologies, processes and techniques that directly reduce

emissions in stationary installations covered by Annex I and that can, as such,

also generate permanent carbon removals. The Bank will begin to operate in

two phases (new Article 10cc). First, in the period 2028–2031, an ‘Investment

Booster’ will reserve 400 million allowances to provide fixed carbon premia

using a ‘first in, first served’ system to fast-track investments on the basis of

speed (new Article 10cd). A dedicated share will be reserved for lower-income

Member States to ensure solidarity. Support will be conditional on compliance

with strict completion deadlines and performance will be guaranteed through

the issuance of completion bonds. Payments will be linked to independently

verified emissions avoidance and may be delivered in allowances. Second,

from 2031 onwards, the Bank will support projects, mainly through

competitive bidding procedures that award Carbon Contracts for Difference or

carbon premiums, thereby providing long-term revenue stability and de-risking

investments (new Article 10ce). The proposal provides for bid bonds and

completion bonds to ensure serious intent and timely delivery, allows

budgetary commitments to be broken down into annual instalments, and

EN 21 EN

includes provisions on repayments and revenues as external assigned revenue

to the Bank. Synergies with the European Competitiveness Fund will be

strengthened by the possibility of awarding a ‘Competitiveness Seal’ to

projects assessed by the Bank.

• Innovation Fund: the proposal updates the legal basis of the Innovation Fund

to ensure continued, predictable support for bringing innovation to market and

scaling up low- and zero-carbon technologies that contribute significantly to

the decarbonisation of EU ETS sectors (Article 10cb). The proposal also

strengthens implementation principles, including project development and

technical assistance for Member States with low participation, introduces

measures to deter speculative applications, and enhances transparency through

annual public reporting. Transitional rules are provided to ensure the continued

application of Article 10a(8) up to 2030.

• Modernisation Fund: the proposal adjusts the Modernisation Fund (amended

Article 10d) to better align with strengthened climate ambition and fairness

objectives, by updating eligibility and distribution indicators using the latest

available data. It extends the eligible investment areas to include electrification

and industrial decarbonisation, including CCS/CCU, while continuing to

prohibit support for fossil fuel-based energy generation. The proposal also

channels allowances redistributed for solidarity purposes through the

Modernisation Fund to maximise impact and enables Member States to

voluntarily transfer additional allowances from their auction volumes to

increase resources of the Fund. In addition, an extra share of the EU ETS cap is

allocated for beneficiary Member States to support investments via the

Industrial Decarbonisation Bank, reinforcing industrial decarbonisation in

lower-income Member States.

• Auction revenues: the proposal introduces targeted reforms to ensure revenues

are used more effectively, transparently, and in full alignment with the EU’s

climate objectives (amended Article 10(3)). It is proposed to define clear

priority areas for spending, reflecting the principle that ETS sectors paying the

carbon price should be supported with the revenues the ETS raises and

therefore focusing on high-impact sectors where ETS revenues can deliver the

greatest emissions reductions and co-benefits. These priorities include EU

climate funds, clean energies and grids, low-carbon transport (especially for

maritime and aviation), industrial decarbonisation (including electrification,

CCS and clean tech) , waste management decarbonisation, circularity, and

supporting research and innovation in these areas. To ensure focused and high-

impact spending, Member States are required by the proposal to allocate at

least 50% of ETS revenues to these priority areas. This binding minimum will

help correct the current imbalance in spending, where critical sectors receive

disproportionately low funding despite their significant role in achieving

emission reductions. The proposal will ensure full alignment with climate

neutrality by prohibiting investments that undermine the EU’s long-term

climate goals. This includes spending on measures that create or prolong

dependencies on carbon-intensive technologies, with fossil fuel lock-in serving

as a key example of such misalignment. It is also proposed to strengthen

visibility requirements to ensure that the public and stakeholders can clearly

identify how ETS revenues are used (amended Article 30m) by obliging

Member States to publicly communicate the origin of ETS-funded measures

EN 22 EN

through multiple channels, such as project documentation and public displays.

The use of the standardised EU label (‘(Co-)funded by the European Union

Emissions Trading System’) will be a key tool to achieve this visibility. The

priority areas for spending include the top-up of the support mechanisms in the

Directive for reducing climate impacts from ETS sectors. It is already the case

that Member States may decide not to auction allowances for certain purposes,

and, in such cases, the quantities not auctioned should be used to calculate the

amount of own resources based on emission trading, in line with the

Commission proposal on the system of own resources (COM(2025)574, recital

14). These reforms will be complemented by amendments to the upcoming

Governance Regulation40, which will require Member States to integrate their

planned use of ETS auction revenues into their NECPs. This ex-ante planning

obligation will ensure that spending is strategically aligned with national and

EU-wide climate targets before revenues are allocated, together with better

monitoring, public scrutiny, and visibility.

• Aviation emissions: it is proposed to increase the coverage of effective carbon

pricing by applying the ETS as appropriate to the EU’s fair share of certain

extra-European departing flights (amended Article 28a(1) and Annex I) and to

business flights (amended Article 3, points (o), (p) and, (am), Article 28a(4)

and, Annex I, points (j) and (k)). This is accompanied by commensurate

increases in the cap (amended Article 28a(1)). Support for multilateral action is

continued by allowing a reduction of the ETS surrender obligation with costs

for the emissions covered by CORSIA (amended Article 12(3) point (b)). It is

proposed that implementation of the CORSIA unit cancellation be extended

until 2035 (amended Article 12(9). Allowances from the increased coverage

are recycled to drive investment in reducing aviation’s climate impacts,

through the uptake of sustainable aviation fuels and scalable decarbonisation

solutions, and the cost-effective reduction of climate impacts from contrails for

flights covered by the ETS (amended Article 3c(6)). The proposal includes

simplification provisions for reporting (amended Article 28a(4)) and for

claiming ETS-financed support for aviation decarbonisation (amended Article

3c(6)).

• Maritime transport emissions: the proposal enhances the effectiveness of the

current system (i) by establishing a Sustainable Maritime Alternative

Propulsion (SMAP) mechanism (new Article 3gaa), which aims to recycle

further EU ETS revenues to support the decarbonisation of the maritime sector;

(ii) by reinforcing safeguards against the risk of evasion by containerships and

vessels engaged in or supporting offshore operations (amended Article 3ga(1)

and Article 3), and ongoing monitoring of such risk; Considering that the

large-scale deployment of emission reduction solutions related to ice-class

vessels and fleets servicing routes subject to derogations until 31 December

2030 remains constrained, it is proposed that the duration of certain

40 Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the

Governance of the Energy Union and Climate Action, amending Regulations (EC) No 663/2009 and

(EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC,

2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and

of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No

525/2013 of the European Parliament and of the Council (OJ L 328, 21.12.2018, pp. 1–77, ELI:

http://data.europa.eu/eli/reg/2018/1999/oj).

EN 23 EN

derogations be extended until 31 December 2035 (amended Article 12(3-e) to

(3-b)). The proposal also extends until 31 December 2038 the temporary

redistribution mechanism established in Article 3ga(3), second subparagraph.

The proposal reinforces the level-playing field through a targeted extension of

the scope of the EU ETS to certain categories of small vessels (below 5 000

gross tonnage but not below 400 gross tonnage) (amended Annex I). This kind

of targeted extension requires the cap to be increased (amended Article 9).

Since the EU ETS for maritime transport interacts with global measures under

development at the IMO, the proposal provides for a review clause that refers

to a possibility for a measure to avoid double payments (Article 3gg). The

proposal provides also for a certain amount of allowances to be reserved and

allocated to support least developed countries and small island developing

countries (new Article 3gab).

• ‘ETS as a service’: to support global climate action and facilitate the pricing

GHG emissions in non-EU countries, it is proposed to establish the ‘ETS as a

service’ mechanism, to provide support to non-EU countries in respect of

emissions not already subject to surrender obligations under the EU ETS (new

Article 25b).

• Risk of carbon leakage, free allocation and benchmarks post 2031: it is

proposed to extend the current instruments (free allocation, carbon leakage list)

to the next period. The proposal extends the validity of the transitional

measures under Article 10b(1) to support certain EIIs deemed to be exposed to

carbon leakage until 2040. The proposal also sets rules on free allocation in the

EU ETS for stationary installations for the five-year periods referred to in

Article 11 of the ETS Directive until 2040, adjusting the maximum update rate

for the benchmarks in Article 10a(2) to reflect the actual decarbonisation

pathway of industrial sectors. For the event that demand for free allowances

triggers the need to apply a uniform cross-sectoral correction factor before

2040, the buffer is increased to 4 % of the total quantity of allowances. The

proposal expands the existing approach on conditionality for district heating,

and conditions all free allocation in the EU ETS as of the five-year period for

free allocation starting on 1 January 2031, upon establishment of a plan to

invest in decarbonisation in the EU (thereby enhancing homegrown production

of decarbonised and low carbon products) and implementation of

decarbonisation investments leading to significant emissions reduction.

Concretely, 80 % of the amount of free allocation in each five-year period will

be allocated annually upon submission of the plan to invest in decarbonisation

in the EU, including an investment and emission reduction plan to reduce

overall climate impacts that is verified by ETS verifiers and approved by the

competent authority. To further incentivise industrial investment within the

Union, operators are required to return the allowances received under Article

10a(3c) first subparagraph, if the operator relocates or otherwise transfers its

relevant acitivities outside of the Union. The remaining 20 % of the amount of

free allocation for the period will be allocated only upon verification that the

decarbonisation investments have been successfully implemented, and that the

corresponding significant emission reduction has been achieved, bythe end of

the five-year period. Concerning CBAM sectors, it is proposed that 15% of the

free allocation phased out due to the CBAM factor be reintroduced, starting in

2028, to reduce the speed at which CBAM is phased-in and mitigate the

EN 24 EN

remaining carbon leakage risk. This will be achieved by reducing and delaying

the phase-out of free allocation until 2038 accordingly. Rules on the update of

the benchmark values for the periods 2031-2035 and 2036-2040 are also

included, thereby extending the principles of the current methodology into

those periods.

• New sectoral heat and fuel benchmarks: The proposal includes an

empowering provision for the Commission to establish sector-specific heat and

fuel benchmarks under the delegated acts referred to under Article 10a(1).

• Indirect cost compensation: the proposal continues to allow Member States to

grant State aid to compensate certain electro-intensive industries for part of the

carbon costs passed on through the electricity market (Article 10(6)). To reduce

administrative burden, the proposal integrates the reporting on indirect cost

compensation into broader reporting on auction-revenue use under the

Governance Regulation, with the upcoming amendment to the Governance

Regulation providing the relevant legal basis.

• Municipal waste incineration: it is proposed to extend the current coverage of

the EU ETS on waste co-incineration, to cover all non-hazardous waste

incineration and co-incineration. To this end, it is proposed to add a new,

separate activity in Annex I encompassing the disposal or recovery in waste

incineration and co-incineration plants for non-hazardous waste. Further, it

includes new definitions of ‘hazardous waste’ and ‘municipal waste’ in Article

3(ak) and Article 3(al) respectively. The extension of the EU ETS applies to

emissions from non-hazardous waste incineration installations with a capacity

exceeding 3 tonnes per hour as laid out in Directive 2010/75/EU. The

obligation to surrender allowances in the municipal waste incineration sector

will be gradually phased in over the period 2031 to 2034, with municipal waste

incineration installations obliged to surrender 100% of their verified emissions

as of 2034 (Article 12a). By derogation, Member States implementing

appropriate equivalent measures should be eligible to a temporary national opt-

out. An optional time-limited derogation is included for installations in

Outermost Regions until 31 December 2035. The number of allowances added

to the total Union-wide number of allowances in respect of the sector should be

commensurate to the phase-in trajectory from 2031 to 2034 (Article 9).

Monitoring and reporting, as well as verification and accreditation, will

continue to apply (Articles 14 and 15). The monitoring and reporting rules laid

out in Commission Implementing Regulation (EU) 2018/2066 will be reviewed

to the extent possible for application to the municipal waste incineration sector.

Waste-to-energy for district heating is eligible for free allocation under the

provisions on district heating. Electricity generation has been ineligible for free

allocation since 2013. The list of eligible uses of auction revenues (Article

10(3)) will be extended to support local authorities in implementing

measures in line with the higher steps of the waste hierarchy. Technologies,

processes and techniques that directly reduce municipal waste incineration

installations’ emissions, in particular carbon capture, will be eligible for

support from the Industrial Decarbonisation Bank, Innovation Fund and

Modernisation Fund, with a view to accelerating industrial decarbonisation. In

addition, waste-to-energy district heating will be covered under the provision

on free allocation to district heating installations, which are extended post-

2030. To monitor methane emissions and unintended impacts of the scope

EN 25 EN

extension for a complete coverage of waste incineration and co-incineration of

non-hazardous waste, monitoring and reporting, as well as verification and

accreditation for landfilling of non-hazardous waste should apply by the time

that the EU ETS has been fully extended to emissions from municipal waste

incineration. To this end, the proposal adds disposal or recovery of non-

hazardous waste in landfills as a new activity in Annex I for the purpose of

monitoring, reporting and verification in accordance with Articles 14 and 15 of

the ETS Directive. When developing monitoring and reporting rules, the future

Best Available Techniques for Landfills should be considered to ensure

regulatory consistency and environmental integrity, and they should be based

on a comprehensive landfill registry to avoid circumventions and ensure

effectiveness. A reporting and review clause will be included (Article 30(9)) to

monitor methane emissions from landfills take account of relevant

developments in terms of waste diversion contrary to the waste hierarchy, and

assess the appropriateness of extending the EU ETS to emissions from

landfilling. Finally, point 5 of Annex I is amended to delete the exclusion of

units for the incineration of municipal waste, which should be included in the

permit of an installation when the capacity threshold of the relevant activity is

exceeded. Installations for the incineration of hazardous waste and units for the

incineration of hazardous waste should remain excluded.

• Non-permanent carbon capture and use (CCU): the inclusion of waste

incineration means that most stages in the life cycle of a CCU product from

which the embedded carbon can be released are now subject to carbon pricing.

This allows the accounting of emissions to be done at the point they are

released from products instead of at point of capture, thereby avoiding the risk

of double counting of emissions, and under-accounting. As a result, in those

cases in which carbon dioxide is captured non-permanently, in intermediate or

final products from which the carbon is expected to be re-emitted in activities

already covered by the EU ETS (e.g. incinerated plastic waste), Article 12(3b)

of the ETS Directive defers the obligation to surrender allowances is until the

CO₂ is released in a process listed in Annex I (downstream) to the ETS

Directive. The proposal empowers the Commission to establish a list of

products from which carbon is expected to be re-emitted in activities already

covered by the ETS. As an exception, the point of accounting for captured

carbon embedded in synthetic fuels is the point at which the fuels are

distributed for consumption (midstream), and not at the point at which the fuels

are combusted in industrial facilities or in the transport sector. Specifically, the

new point of accounting would be the point at which the fuels are distributed,

for which a new activity is included in Annex I. In addition, to ensure complete

coverage of all carbon dioxide emissions in the CCU chain, the scope of the

ETS in Annex I should be extended to include the capture of carbon for use

(currently, only capture for storage is covered), captured carbon processing,

liquefaction and similar services, and the transport of captured carbon for use

(currently only covering only use for storage).

• Clarifying existing rules on scope, permitting and reporting: it is proposed

to amend the definition of ‘new entrant’ to ensure full coordination with the

definition of an ‘incumbent installation’ contained in Article 2(1) of

EN 26 EN

Commission Delegated Regulation (EU) 2019/33141, thereby aligning the

definition with the practice and resolving the issue that, for 18 months, neither

of the two definitions applied. The proposal clarifies the scope and definition

of the activity ‘Production of hydrogen (H2) and synthesis gas with a

production capacity exceeding 5 tonnes per day’ under Annex I to the ETS

Directive. The proposal includes an empowerment for the Commission to

adopt implementing acts establishing minimum horizontal rules at EU level on

the granting, withdrawing and suspension of GHG emissions permits to

improve the level playing field across Member States, solve implementation

issues and ensure clear rules as regards the status of installations as a new

entrant or incumbent installation under the EU ETS. Finally, the proposal

includes amendments to clarify the legal basis and coordination between the

reporting procedures under Article 10(5) and Article 21 of the ETS Directive.

• Financing the proper functioning and management of the EU ETS:

establishing the conditions enabling the introduction of revenues dedicated to

financing the proper functioning and management of the EU ETS, including

the proper operation, functioning and security of the Union Registry (Article

19) and the implementation of the investment conditionality rules for free

allocation.

The main elements of the MSR Decision which are amended are the following:

• In addition to the proposed removal of the invalidation mechanism

((COM(2026) 153 final42), this proposal introduces an integrated package of

changes to make the MSR parameters dynamic over time. This is to take

account of a shrinking cap and ensure that the reserve remains resilient to

maintain liquidity.

• First, the upper and lower thresholds and the release amount (Article 1(5) and

(6)) are proposed to evolve over time, with a fixed annual reduction of 4 % per

year as from 2029. The exact amounts of these values are rounded to the

nearest million and specified in Annex I to the MSR Decision.

• Second, the proposal introduces changes to the release of allowances:

• It introduces a lower buffer from 2028 (Article 1(5)), which mirrors the

logic of the upper buffer that was introduced in the 2023 revision. The

current lower threshold is at 400 million and the current release rate is set

at 100 million. This implies a lower buffer value of 300 million

allowances. When the total number of allowances in circulation (TNAC)

is between the lower threshold and the lower buffer, the amount of

allowances released from the MSR is calculated as ‘Lower threshold -

TNAC’, rather than releasing a fixed amount of 100 million under the

current rules. When the TNAC is below the lower buffer, 100 million are

released from the MSR.

41 Commission Delegated Regulation (EU) 2019/331 of 19 December 2018 determining transitional

Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of

Directive 2003/87/EC of the European Parliament and of the Council (OJ L 59, 27.2.2019, pp. 8–69,

ELI: http://data.europa.eu/eli/reg_del/2019/331/oj). 42 Procedure 2026/0085/COD, Proposal for a Decision of the European Parliament and the Council

amending Decision (EU) 2015/1814 as regards ceasing the invalidation of allowances in the market

stability reserve.

EN 27 EN

• From 2029, the lower threshold of 400 million and the lower buffer of

300 million, as well as the amount of 100 million allowances to be

released from the reserve when the TNAC is below the lower buffer, are

proposed to decrease by a fixed annual reduction of 4 % per year.

• Third, the intake rate of the reserve is reduced from 24% to 12% as from 2028

(Article 1(5)). This means that, in the event of a surplus, future intakes will be

spread over a longer period of time. In light of a shrinking cap and future

market tightness, it is beneficial to spread intakes over a longer period.

Consequently, the upper buffer threshold needs to be adjusted downwards to

947M to reflect the reduced intake rate.

• Fourth, changes are proposed to how aviation is taken into account in the

calculation of the TNAC. Currently, Article 1(4a) requires that the net demand

from aviation from 2024 is reflected in the calculation. This article is amended

to include the cumulative impact of net aviation demand over 2012-2023 in the

TNAC. It applies from 2028, and by taking into account the cumulative

demand of aviation from 2012 in the TNAC calculation of 2027, it reduces it

by 173 million allowances. This makes the MSR more responsive and will

result in the earlier release of allowances.

The main amendments to the MRV Maritime Regulation and FuelEU Maritime Regulation

are as follows:

• The proposal aims to deliver simplification for operators complying with the

MRV/ETS and FuelEU obligations by merging the relevant MRV compliance

cycles and minimising existing duplications and areas of divergences. This

requires an expansion of the scope of the MRV Regulation (amended Article 2)

to cover energy use in addition to GHG emissions and energy efficiency data,

and an update of the monitoring and reporting requirements (amended Article 9

and Article 10) to ensure that all relevant data are collected under the same

MRV system.

• The proposed amendments introduce consequential changes to the

content of the monitoring plan and the arrangements for submitting it

(amended Article 6) and to the emissions report (amended Article 11).

Consequently, companies are required to include and submit all

necessary information in one single document in a common workflow for

compliance with MRV requirements under both the MRV/ETS and

FuelEU.

• The proposal introduces changes to verification rules to cater for the

extension of the Regulation to cover energy use and new consequential

reporting requirements (amended Articles 13 to 16). The empowerments

conferred on the Commission in relation to verification and accreditation

rules under this Regulation should be implemented with a view to

delivering a single accreditation and verification framework applicable

under MRV, ETS, and FuelEU Maritime.

• The proposal further confers on the Commission the power to adopt

delegated acts to amend the monitoring methods and rules to make them

fit for the expanded scope of the Regulation as new data points are added

to cover energy use (amended Article 5).

EN 28 EN

• The proposed amendments to the MRV Regulation require consequential

amendments to the FuelEU Regulation, particularly since the monitoring-

and-reporting-only-once principle is fully implemented through a shared

MRV compliance cycle.

• Furthermore, the proposal introduces a new Article 4a to clarify the role of the

administering authority responsible in respect of MRV obligations and to

establish an attribution mechanism for any shipping company falling within the

scope of the MRV Regulation to further enhance the robustness of the MRV

system.

• The proposal also aims to reinforce the level-playing field through a targeted

extension of the scope of the EU ETS to certain categories of ships (amended

Article 2 of the MRV Regulation). This targeted extension requires delegated

and implementing powers to be conferred on the Commission to provide for

the relevant monitoring and reporting rules (amended Articles 5, 6 and 11 of

the MRV Regulation).

• The proposal contains tailored rules to reinforce the safeguards against the risk

of evasion by vessels engaged in or supporting offshore operations. These

tailored rules require changes to the scope of the MRV Regulation (amended

Article 2 of the MRV Regulation), the inclusion of new definitions (amended

Article 3 of the MRV Regulation) and the deletion of the list of ‘offshore ships’

(amended Annex I to the MRV Regulation). The proposal confers on the

Commission the power to adopt delegated acts to provide for the relevant

monitoring and reporting rules (amended Articles 5, 6, and 11 of the MRV

Regulation).

EN 29 EN

2026/0212 (COD)

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Directive 2003/87/EC and Decision (EU) 2015/1814 as regards driving

competitiveness and cost-effective decarbonisation

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular

Article 192(1) thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Economic and Social Committee1,

Having regard to the opinion of the Committee of the Regions2,

Acting in accordance with the ordinary legislative procedure,

Whereas:

(1) The Paris Agreement3, adopted on 12 December 2015 under the United Nations

Framework Convention on Climate Change (UNFCCC) (the ‘Paris Agreement’),

entered into force on 4 November 2016. The Parties to the Paris Agreement have

agreed to hold the increase in the global average temperature well below 2 °C above

pre-industrial levels and to pursue efforts to limit the temperature increase to 1,5 °C

above pre-industrial levels.

(2) The urgency to maintain the efforts to achieve the Paris Agreement goal of 1,5 °C has

become more significant following the findings of the Intergovernmental Panel on

Climate Change in its Sixth Assessment Report that global warming can only be

limited to 1,5 °C if strong and sustained reductions in global greenhouse gas emissions

within this decade are immediately undertaken.

(3) On 5 November 2025, the Union submitted its nationally determined contribution

(NDC) to the UNFCCC, following its approval by the Council. The NDC indicates

that, following the setting of the target for 2040 climate target of the Union, and in line

with the foreseen reviews, the Commission will prepare a climate policy architecture

for beyond 2030, and prepare the proposals for this policy framework that will be

needed to deliver the 2040 target in a fair and cost-efficient manner.

(4) The NDC was prepared on the basis of the outcome of the political debate launched by

the Commission Communication of 6 February 2024 on “Securing our future Europe's

2040 climate target and path to climate neutrality by 2050 building a sustainable, just

1 OJ C , , p. . 2 OJ C , , p. . 3 OJ L 282, 19.10.2016, p. 4.

EN 30 EN

and prosperous society”4 which was based on an extensive impact assessment, as well

as stakeholder input, collected via public consultation. That impact assessment

underlies the impact assessment supporting this Directive.

(5) The Competitiveness Compass5 and the Clean Industrial Deal6 have identified

continued decarbonisation and accelerated circularity as essential elements to further

reduce Europe’s dependencies on fossil fuels and strengthen economic

competitiveness and resilience, while setting out the direction for adapting the EU

Emissions Trading System (ETS) to a changing geoeconomic context while

maintaining the fundamentals.

(6) The rapidly changing geopolitical context further emphasised the importance of

delivering on the Clean Industrial Deal to enhance resource security and address

Europe’s dependence on imported fossil fuels, which is the main cause of higher, and

more volatile, energy prices. Conflicts in Ukraine and the Middle East confront the

Union once again with volatile and rising energy prices driven by Europe’s

dependence on imported fossil fuels, which damage the competitiveness of European

industry. The EU ETS should continue to be a robust, predictable and fit for purpose

driver of decarbonisation, thereby lowering the EU’s dependence on fossil fuel

imports and strengthening its resilience, while fostering investments in the clean

energy transition in homegrown renewables and other zero- and low-carbon energy

sources.

(7) In its conclusions of 19 March 20267 the Council invited the Commission to present a

review of the EU ETS by July 2026 at the latest, to reduce the volatility of the carbon

price and mitigate its impact on electricity prices, including related supply chain costs,

and on diversion of activities, while preserving the essential role of the ETS in the

climate and energy transition through a market-based price signal for carbon emissions

that drives investment and innovation. The Parliament, the Council and the

Commission, signed the ‘One Europe, One Market’ roadmap setting Q1 2027 as target

for agreement for the review of the EU ETS8.

(8) By Regulation (EU) 2021/1119 of the European Parliament and of the Council9, the

Union has laid down the objective of economy-wide climate neutrality by 2050 at the

latest and the aim of achieving negative emissions thereafter. That Regulation also

provides that the Commission is to endeavour to align all future draft measures or

legislative proposals, including budgetary proposals, with the objectives of that

Regulation and, in any case of non-alignment, provide the reasons for such non-

alignment as part of the impact assessment accompanying those proposals.

4 COM(2024) 63 final. 5 Communication from the Commission to the European Parliament, the European Council, the Council,

the European Economic and Social Committee and the Committee of the Regions, A Competitiveness

Compass for the EU, 29 January 2025 (COM(2025) 30 final). 6 Communication from the Commission to the European Parliament, the Council, the European

Economic and Social Committee and the Committee of the Regions, The Clean Industrial Deal: A joint

roadmap for competitiveness and decarbonisation, 26 February 2025 (COM(2025) 85 final). 7 European Council Conclusions 19 March 2026 EUCO 1/26 CO EUR 1 CONCL 1. 8 One Europe, One Market Roadmap of the European Parliament, the Council of the European Union and

the European Commission. 9 Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing

the framework for achieving climate neutrality and amending Regulations (EC) No 401/2009 and (EU)

2018/1999 (‘European Climate Law’) (OJ L 243, 9.7.2021, p. 1, ELI:

http://data.europa.eu/eli/reg/2021/1119/oj).

EN 31 EN

(9) Regulation (EU) 2021/1119, as amended Regulation (EU) 2026/667 of the European

Parliament and of the Council10, establishes a binding Union reduction target for net

greenhouse gas emissions (emissions after deduction of removals) of 90 % compared

to 1990 levels by 2040. This target includes a possibility to use a limited quantity of

high-quality international credits to make an ‘adequate contribution’ towards the 2040

target, starting in 2036. This amount can be up to 5% of 1990 EU net GHG emissions,

corresponding to a domestic reduction of net GHG emissions of at least by 85%

compared to 1990 levels by 2040. In accordance with Article 4(5)(a) of Regulation

(EU) 2021/1119, a pilot period in 2031-2035 may be considered.

(10) All sectors of the economy need to contribute to achieving the emission reductions

established by Regulation (EU) 2021/1119. Therefore, the ambition of the EU ETS

should be adjusted to be in line with the economy-wide net greenhouse gas emission

reduction target for 2040, the objective of achieving climate neutrality by 2050 at the

latest and the aim of achieving negative emissions thereafter, as laid down in

Regulation (EU) 2021/1119.

(11) The NDC of the Union and its Member States under the Paris Agreement includes

emissions from aviation subject to effective carbon pricing through the EU ETS

which, until 31 December 2026, only comprises flights within the European Economic

Area (EEA), departing flights to Switzerland and departing flights to the United

Kingdom. The NDC notes that any broader scope would result from the amendment of

Directive 2003/87/EC of the European Parliament and of the Council11 based on this

Directive. Emissions from aviation are expected to increase, unless the use of

alternative fuels is increased. The additional aviation emissions covered by the EU

ETS from 2027 onwards should not yet be included in the NDC of the Union and its

Member States, nor be considered to be emissions for the purposes of Regulation (EU)

2021/1119.

(12) There should be further support from the EU ETS for the use of sustainable aviation

fuels alongside binding legislative mandates pursuant to Regulation (EU) 2023/2405

of the European Parliament and of the Council12, notwithstanding that these mandates

are in place even without support from the EU ETS. Therefore, the availability of

reserved allowances for the use of sustainable aviation fuels and other aviation fuels

that are not derived from fossil fuels under Article 3c(6) of Directive 2003/87/EC

should be extended until 2040. A lower proportion of the price difference should be

covered, in order to enable a longer period of time for the mechanism being in place.

There should also be equal treatment of all forms of propulsion, including

electrification. The extension of the geographic scope of the EU ETS for aviation, in

combination with the corresponding increase of the total amount of allowances to be

allocated in respect of aircraft operators, enables an increased number of allowances

for supporting alternative propulsion technologies and fuels.

10 Regulation (EU) 2026/667 of the European Parliament and of the Council of 11 March 2026 amending

Regulation (EU) 2021/1119 as regards the setting of a Union intermediate climate target for 2040 (OJ

L, 2026/667, ELI: http://data.europa.eu/eli/reg/2026/667/oj). 11 Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a

scheme for greenhouse gas emission allowance trading within the Community and amending Council

Directive 96/61/EC (OJ L 275, 25.10.2003, p. 32, ELI: http://data.europa.eu/eli/dir/2003/87/oj). 12 Regulation (EU) 2023/2405 of the European Parliament and of the Council of 18 October 2023 on

ensuring a level playing field for sustainable air transport (ReFuelEU Aviation) (OJ L, 2023/2405,

31.10.2023, ELI: http://data.europa.eu/eli/reg/2023/2405/oj).

EN 32 EN

(13) Notwithstanding that the scope of carbon pricing is only extended partially from

January 2029, the ETS support for alternative propulsion technologies and fuels

should nonetheless be extended to all departing flights from that date. This maintains

equal treatment on all routes departing from any aerodrome in the European Economic

Area, and incentivises their rapid deployment.

(14) To reduce aviation’s total climate impacts, the support mechanism referred to in

Article 3c(6) of Directive 2003/87/EC should also support cost-effective approaches.

The use of contrail forecasting models to support cost-effective mitigation of contrails

(also known as condensation trails) offers a low-cost complement to other approaches

supported by this mechanism. It should rely on a limited share of the number of

allowances reserved for the purposes provided for in Article 3c(6). The mechanism

should be complementary to the monitoring, reporting and verification framework for

non-CO₂ aviation effects pursuant to Article 14(5) of that Directive.

(15) In view of rewarding most efficient installations, it is appropriate to extend the

possibility, for installations previously included in the EU ETS due to the operation of

combustion units with a total rated thermal input exceeding 20 MW that change their

production processes to reduce their greenhouse gas emissions and no longer meet that

threshold as a result, to remain under the EU ETS until the end of the two following

five-year periods for free allocation following the change to their production

processes.

(16) For business flights, the reserved amount of allowances should only be available in the

case of aircraft using electricity or hydrogen for propulsion. In order to ensure uniform

conditions for the allocation of reserved allowances pursuant to Article 3c(6) of

Directive 2003/87/EC, implementing powers should be conferred on the Commission

to adopt a list of aircraft that are considered business aircraft. Such powers should be

exercised in accordance with Regulation (EU) No 182/2011 of the European

Parliament and of the Council13.

(17) In view of ensuring that installations are always covered by either the status of new

entrant or of incumbent installation within each of the five-year periods referred to in

Article 11 of Directive 2003/87/EC, it is necessary to revise the definition of new

entrant under that Directive. Specifically, the definition of a ‘new entrant’ under

Article 3, point (h), of Directive 2003/87/EC, read together with the definition of an

‘incumbent installation’ under Article 2, point (1), of Commission Delegated

Regulation (EU) 2019/33114, there is a missing time period of 1.5 years at the end of

each free allocation period, starting three months before the submission of the list for

the next period pursuant to Article 11(1) of Directive 2003/87/EC, where neither of the

two definitions apply. Therefore, the definition of ‘new entrant’ should be revised to

align with the current practice, whereby an installation is only treated as incumbent

where it is included in the list submitted pursuant to Article 11(1) of Directive

2003/87/EC for the relevant period. As a result, any installation receiving a permit for

the first time within the period starting from three months before the date for

13 Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011

laying down the rules and general principles concerning mechanisms for control by Member States of

the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, pp. 13–18, ELI:

http://data.europa.eu/eli/reg/2011/182/oj). 14 Commission Delegated Regulation (EU) 2019/331 of 19 December 2018 determining transitional

Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of

Directive 2003/87/EC of the European Parliament and of the Council, (OJ L 59, 27.2.2019, pp. 8–69,

ELI: http://data.europa.eu/eli/reg_del/2019/331/oj).

EN 33 EN

submission of the list under Article 11(1), and ending on 31 December of the last year

of the corresponding five-year period for free allocation should regarded as a new

entrant for that period. In the situation where an installation obtains a greenhouse gas

emissions permit for the first time which is then, successively, withdrawn and that

installation is granted another new greenhouse gas emissions permit under the same

allocation period, the installation should only be able to re-enter the EU ETS in the

following allocation period, under the applicable qualification either as new entrant or

incumbent installation in accordance with the relevant definitions under Article 3,

point (h), of Directive 2003/87/EC and Article 2, point (1), of Delegated Regulation

(EU) 2019/331.

(18) The Union is to achieve climate neutrality by 2050 at the latest and all sectors of the

economy, including maritime transport, are to contribute to achieving the emission

reductions established by Regulation (EU) 2021/1119, in line with its updated NDC.

The inclusion of maritime transport in the EU ETS since 2024 ensures that the sector

contributes its fair share to the climate objectives of the Union as well as to the

objectives of the Paris Agreement. The International Maritime Organization (IMO)

adopted, in 2023, a strategy to decarbonise shipping15 ‘by or around, i.e. close to,

2050’ and agreed on developing mid-term measures to implement it, considering a

basket of candidate measures covering both technical and economic elements. The

adoption and implementation of such a global measure putting effectively a price on

greenhouse gas emissions from maritime transport in parallel to the EU ETS would

entail a risk of double payments by shipping companies. The provisions of Directive

2003/87/EC as regards maritime transport activities should be reviewed in the event of

the adoption by the IMO of a global market-based measure to reduce greenhouse gas

emissions from maritime transport. To this end, the Commission should present a

report to the European Parliament and to the Council within 18 months of the adoption

of such a measure and before it becomes operational. The Commission should in that

report examine that global market-based measure as regards its ambition in light of the

objectives of the Paris Agreement, its overall environmental integrity, including in

comparison with the provisions of Directive 2003/87/EC covering maritime transport,

and any issue related to the coherence of the EU ETS and that measure, including

avoiding double payment. As appropriate, and in order to prevent such a risk of double

payment while ensuring that no environmental backsliding occurs, the accompanying

legislative proposal should provide for an IMO deduction mechanism according to

which it is appropriate to allow shipping companies to surrender fewer allowances

than their verified emissions to the extent that those emissions are also effectively

priced under the IMO measure. To take into account the potential role of the Union in

supporting the broader international effort to decarbonise maritime transport, the

accompanying legislative proposal should provide for a measure according to which

allowances are to be reserved to supportleast developed countries and small island

developing countries.

(19) Significant investments will continue to be required to support the decarbonisation of

maritime transport, including investments in fleet retrofitting and the deployment of

clean technologies. At the same time, Member States with a particularly high

concentration of shipping companies relative to their population continue to incur

proportionately higher administrative costs in implementing the EU ETS to support

decarbonisation of maritime transport including supporting capital investments in the

15 ANNEX 1, RESOLUTION MEPC.377(80), Adopted on 7 July 2023, 2023 IMO Strategy on reduction

of GHG emissions from ships.

EN 34 EN

maritime sector, including ports, shipping companies, as well as for the use of

sustainable fuels and propulsion technologies. The temporary allocation of allowances

provided for in Article 3ga(3), second subparagraph of Directive 2003/87/EC

contributes to supporting those objectives through the use of the corresponding auction

revenues in accordance with this Directive. It is therefore appropriate to extend its

application until 31 December 2038. The Commission should assess, by 30 September

2035, whether a further extension is justified.

(20) The transition from the use of fossil fuels, alongside energy efficiency improvements,

is essential to achieving the decarbonisation of the maritime sector. However, the

significant price differentials between conventional fossil fuels and sustainable

maritime fuels as well as the pace of deployment of zero-emission propulsion

technologies, such as electric and wind-assisted propulsion systems, hamper this

transition. Support to early movers is therefore desirable to de-risk investments in

maritime decarbonisation in the Union. Hence, during the period from 1 January

[2028/first year after the entry into force of this directive] until 31 December 2040,

110 million allowances should be reserved to be allocated to shipping companies, on a

transparent, equal and non-discriminatory basis, to cover part of the price differential

between conventional fossil fuels and eligible sustainable maritime fuels, as well as all

or part of the additional cost incurred in deploying and operating eligible zero-

emission propulsion technologies, and technologies required to use eligible sustainable

maritime fuels upon verified operation on such fuels. Where allowances are allocated

to a shipping company under this reserve, such allocation should be taken into account

by the shipping company if it intends to transfer the costs arising from the surrender of

allowances to another entity in accordance with the reimbursement mechanism laid

down in Article 3gc of Directive 2003/87/EC. For instance, contractual arrangements

may provide for the transfer of the allocated allowances from the shipping company to

the other entity. The Commission should be empowered to adopt delegated acts to

supplement Directive 2003/87/EC with the detailed rules necessary for the application

of this reserve and to adopt implementing acts to establish the lists of non-Union ports

and third countries in respect of which a derogation from the origin requirements

should apply.

(21) Given the evolving technological and commercial maturity of sustainable maritime

fuels and zero-emission alternative propulsion technologies, the Commission should

carry out an evaluation of the functioning of the reserve established under Article

3gaa.

(22) Evasive behaviour from shipping companies is problematic, in particular as it can

undermine the environmental integrity of the EU ETS. In order to reduce the risk of

evasive port calls by containerships to ports outside the Union and the relocation of

container transhipment activities outside the Union, Directive 2003/87/EC provides for

an exclusion from the definition of ‘port of call’ of stops of containerships in a

neighbouring container transhipment port identified in the implementing acts adopted

pursuant to Article 3ga(2) of that Directive. However, the criterion related to the port’s

share of transhipment of containers may not adequately cover ports outside the Union

that have a high potential to attract transhipment activities from Union ports and where

the transhipment of containers accounts for most container traffic. It is therefore

appropriate to set this criterion at 50 % instead of 65 %. In addition, it is appropriate to

exclude from the definition of ‘port of call’ ports with the necessary infrastructure for

container transhipment activities that are located in the Union’s immediate vicinity,

namely within 150 nautical miles from a port under the jurisdiction of a Member State.

EN 35 EN

To ensure the proportionality of the measure and that it results in equal treatment,

account should be taken of measures in third countries that have an effect equivalent to

Directive 2003/87/EC. This includes ports in a third country with whom an ETS

linking agreement is in place. To better capture major disruptions in the shipping

market, which can rapidly alter container transhipment patterns, the Commission

should review the validity of the list that identifies neighbouring container

transhipment ports once a year instead of once every two years. However, for reasons

of administrative efficiency, the Commission should be empowered to adopt

implementing acts that amend the list of neighbouring container transhipment ports

only where necessary, for example where a port ceases to meet the criteria to be

identified as a neighbouring container transhipment port. In order to further reduce the

risk of evasive port calls outside of the Union and the relocation of container

transhipment activities outside of the Union, it is appropriate to provide for a

complementary measure. Such measure should consist in a temporary derogation from

the surrender obligations under Directive 2003/87/EC in respect of certain maritime

transport activities by large containerships that perform long-distance voyages

between ports outside the Union and Union ports.

(23) To avoid or minimise EU ETS compliance costs, shipping companies performing or

supporting offshore operations might be inclined to use bases located outside the

Union instead of bases located in the Union, or to add evasive port calls outside the

Union. To reduce the risk of circumvention and ensure a level playing field, the

definition of ‘port of call’ should be amended in order to include offshore worksites

where shipping companies perform or support offshore operations, including activities

of scientific research concerning the resources of the seabed and its subsoil, and

activities related to the design, planning, construction, operation, maintenance and

decommissioning of offshore installations and infrastructure.

(24) Emissions from ships below 5 000 gross tonnage but not below 400 gross tonnage

represent about 15 % of emissions from ships under the scope of application of

Directive 2003/87/EC, but emissions from ships within that range are emitted by a

large number of ships. The inclusion of emissions from certain categories of ships

below 5 000 gross tonnage but not below 400 gross tonnage is beneficial to improve

the effectiveness of the EU ETS and the level playing field with ships of 5 000 gross

tonnage and above and therefore those ships should be included in the scope of this

Directive. No later than 31 December 2031, the Commission should present a report to

the European Parliament and to the Council in which it should examine the feasibility

and economic, environmental and social impacts of the inclusion in Directive

2003/87/EC of emissions from ro-pax ships and passenger ships below 5 000 gross

tonnage.”

(25) The current derogations provided for in Directive 2003/87/EC from the obligation to

surrender allowances for ice-class ships, for voyages involving outermost regions and

small islands without a fixed land connection, and for certain passenger transport

services operated under public service obligations or public service contracts are set to

end on 31 December 2030. While the decarbonisation of ice-class ships and the fleets

serving those routes and services is progressing and innovative technologies such as

battery-electric and wind-assisted propulsion are becoming increasingly viable, the

large-scale deployment of emission reduction solutions on those vessels that are

important for connectivity purposes remains constrained, in particular by infrastructure

EN 36 EN

and investment needs. In order to allow sufficient time for that transition16, and in light

of the need to ensure territorial continuity, connectivity and affordability of essential

maritime services, the duration of these derogations should be extended for a limited

period of time. Given the specific technical and operational challenges associated with

the decarbonisation of ice-class ships, the Commission should review, before the

expiry of the derogation applicable to those ships, the progress made in the

deployment of suitable low- and zero-emission technologies and assess the

appropriateness of extending that derogation beyond 31 December 2035.

(26) In order to support global climate action and facilitate the pricing of greenhouse gas

emissions in third countries, support should be provided to third countries in respect of

emissions that are not already subject to surrender obligations under Directive

2003/87/EC. The Commission should be empowered to adopt delegated acts to amend,

where relevant, the geographical scope laid down in Article 3ga(1) of Directive

2003/87/EC for maritime emissions released during voyages between the Union and

the third country to which support is provided. In order to supplement Directive

2003/87/EC, the Commission should also be empowered to adopt delegated acts to lay

down rules on the operation of that support to third countries. This would also

facilitate the implementation of the ETS linking agreement being prepared with the

United Kingdom.

(27) With a view to addressing unclear implementation situations and diverging Member

States’ practice, as well as providing means to address continuous non-compliance

with Directive 2003/87/EC, it is necessary to clarify existing rules as regards the

granting, suspension and withdrawing of greenhouse gas emissions permits by

competent authorities, and further develop them to enhance harmonisation. In order to

ensure harmonised conditions for the implementation of Article 6 of Directive

2003/87/EC, as regards the granting, suspension and withdrawing of greenhouse gas

emissions permits by the competent authorities, the Commission should be

empowered to adopt implementing acts. Such powers should be exercised in

accordance with Regulation (EU) No 182/2011.

(28) Directive (EU) 2023/959 of the European Parliament and of the Council17 which

amended Directive 2003/87/EC by extending the activity in Annex I to Directive

2003/87/EC on transport by pipeline of greenhouse gases for the purpose of storage, to

all means of transport. The development of this activity has demonstrated the

complexity in appointing the administrating authority for cases of cross-border

transport, making it necessary to clarify which Member State should grant permits to

the operator of the CO2 transport infrastructure. To privilege clarity and thus speed up

permitting, a clear rule, applicable in all cases, should be established, whereby the

competent authority should be the one of the Member State where the CO2 is

collected, which will be where it is captured. The competent authority should be

responsible for that CO2 transport until the CO2 is collected by an operator in another

Member State. Member States where the CO2 only transits should not be involved in

the permitting of the CO2 transport activity.

16 European Commission: Directorate-General for Climate Action and Ricardo, Electric vessels and wind-

assisted propulsion systems- opportunities for the EU maritime industry and value chain – Final report,

Publications Office of the European Union, 2026, https://data.europa.eu/doi/10.2834/7505429. 17 Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023 amending

Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the

Union and Decision (EU) 2015/1814 concerning the establishment and operation of a market stability

reserve for the Union greenhouse gas emission trading system (OJ L 130, 16.5.2023, ELI:

http://data.europa.eu/eli/dir/2023/959/oj).

EN 37 EN

(29) Achieving the Union’s emission reduction target of -90% by 2040 as compared to

1990 levels requires adjusting the rate of reduction in the emissions of the sectors

covered by the EU ETS from 2031. The linear reduction factor provided for in Article

9 of Directive 2003/87/EC should therefore be adjusted.

(30) The rate of reduction should also take account of the provisions of the European

Climate Law regarding the use of high-quality international credits as adequate

contribution towards the EU 2040 climate target, starting in 2036. International credits

should be integrated in the future climate legislation using high-quality and integrity

credits. The use of credits should support both the EU and third countries in achieving

GHG reductions compatible with the Paris Agreement. High credit integrity must be

ensured and where appropriate the rules developed under Article 6.4 of the Paris

Agreement may be complemented. The specific role and deployment of international

credits will be based on an impact assessment and subject to the development of Union

law setting robust and high integrity criteria and other safeguards. In view of the

establishment of a facility for the purchase of international credits to reduce the overall

need for domestic action by up to 5 percentage points, the target emissions reductions

for the EU ETS should be in line with an overall EU-wide domestic ambition of -90%

until 2035 and of -85% from 2036 to 2040. This should be reflected through a lower

linear reduction factor of the EU ETS from 2036, and allowances should be put aside

for the purchase of the amount of international credits that correspond to the reduction

of the ambition in the EU ETS. The Commission should report to the European

Parliament and to the Council on the development of a high-quality and high-integrity

international credit market, taking into account the criteria set out in Regulation

2021/1119/EU, and the contribution of these credits to the climate ambition of the

activities listed in Annex. Subject to this report, the linear reduction factor from 2036

should revert to a trajectory for ETS sectors aligned with an EU domestic reduction of

90% by 2040 in the event that high-quality and high-integrity, cost-effective

international credits are not available.

(31) Carbon removals are introduced as a flexibility in the European Climate Law to allow

the EU to reach its 2040 climate target in a more cost-efficient way, as some emissions

will be more cost-efficient to offset through removals than to abate them. In particular,

they can contribute to compensate remaining hard-to-abate GHG in sectors covered by

the EU ETS. In that context, the EU ETS should contribute to their uptake and

financing, including because they can be generated by activities already covered by the

EU ETS. Foregoing the flexibility provided by permanent carbon removals would be

at the cost of the EU’s competitiveness and the environment in the medium to long

term. Together with other adjustments to the system, such as to the total emissions cap

and the Market Stability Reserve (MSR), the integration of permanent carbon

removals can contribute to cost containment and improving liquidity in the EU ETS as

its cap shrinks. The integration of permanent carbon removals can also provide an

avenue to incentivise the development and deployment of nascent negative emissions

technologies. Beyond 2040, alternative or complementary mechanisms to generate

permanent removals may need to be developed to reach net-zero in 2050 and net-

negative emissions thereafter. All adjustments to the cap set out in Article 9 should

take into account the emissions of the EEA and the European Free Trade Association

(EFTA), as well as regarding the integration of domestic permanent carbon removals.

(32) The integration in the EU ETS rests on the basic principle that the cancellation of a

removal unit replaces the surrendering of an emission allowance, which represents the

payment of the price for having emitted a tonne of CO2. As a consequence, only

EN 38 EN

permanent removals can be integrated in the EU ETS. In addition, it is preferrable to

integrate only those removals for which reversals are subject to monitoring and the

surrendering of allowances in the EU ETS.

(33) The current price-difference between permanent carbon removals and allowances

means that permanent removals will need to be supported in a predictable manner, to

ensure that their generation in line with the additional emission space that is created in

the ETS through the issuance of allowances. In addition, because they are novel

instruments, their integration must protect the EU ETS from uncertainty and must

guarantee the environmental integrity of the units that are used to compensate an

emission in the EU ETS. Therefore, removals should be integrated in the EU ETS by

the Commission. To that end, the total quantity of allowances in the EU ETS should

be increased by a number of allowances that should be allocated to the Commission

for the purchase of an equivalent amount of permanent carbon removals to offset the

newly created allowances. The linear reduction factor should not apply to this quantity

of allowances, at it is equivalent to the amount of removals that should be purchased.

In addition to these newly created allowances, further allowances should be assigned

to the Commission to generate revenues through their auctioning for the purchase of

the permanent carbon removals, in view of the expected cost differential between

allowances and carbon removals. Where fewer allowances are required for financing

carbon removals than expected, the unused allowances should be integrated back in

the Union-wide quantity of allowances referred to in Article 9 of Directive

2003/87/EC. The net target of the EU ETS is the equivalent of the gross emissions

minus the permanent carbon removals that are subject to integration.

(34) To facilitate the use of permanent carbon removals by operators, shipping companies

and aircraft operators, these should be allowed to compensate their own fossil

emissions with their biogenic CO2 emissions captured and permanently stored, which

are certified as permanent carbon removal units in accordance with the methodologies

for the certification of domestic permanent biogenic emissions capture with carbon

storage (BioCCS) removals established under Regulation (EU) 2024/3012 of the

European Parliament and of the Council18. To avoid double counting, carbon removals

units used for the purpose of compensating own emissions should be cancelled from

the Union Registry provided for in Article 12 of Regulation (EU) 2024/3012 of the

European Parliament and of the Council19. This compensation mechanism cannot

entail the generation of negative emissions or the of obtaining allowances. It should

lead to an adjustment of the allowances assigned for the purchase of carbon removals

and to the carbon removals that are to be purchased, to prevent the total emission

space from increasing beyond the limit implied by the integration through the

purchasing programme.

(35) All adjustments to the cap set out in Article 9, as well the amount of domestic

permanent carbon removals to be integrated, should take into account the emissions of

the EEA and the European Free Trade Association.

(36) Regulation (EU) 2024/3012 of the European Parliament and of the Council establishes

a framework to certify carbon removals, carbon storage in products, and carbon

18 Regulation (EU) 2024/3012 of the European Parliament and of the Council of 27 November 2024

establishing a Union certification framework for permanent carbon removals, carbon farming and

carbon storage in products (OJ L, 2024/3012, ELI: http://data.europa.eu/eli/reg/2024/3012/oj). 19 Regulation (EU) 2024/3012 of the European Parliament and of the Council of 27 November 2024

establishing a Union certification framework for permanent carbon removals, carbon farming and

carbon storage in products (ELI: http://data.europa.eu/eli/reg/2024/3012/oj).

EN 39 EN

farming in the Union. The CRCF Regulation provides for high-integrity transparency

as regards the duration of carbon storage because carbon is only considered stored as

long as the activity is monitored and subject to appropriate liability rules. To consider

carbon storage from nature-based solutions as permanent, it will be necessary that

sufficiently long-term monitoring of a carbon farming activity is ensured and that any

liability for future reversals is taken on appropriately through enforceable financial,

institutional, and contractual mechanisms, such as a permanence fund. Therefore, the

Commission should examine the possible contribution of nature-based solutions and

carbon farming to permanent removals in the context of the review of this Directive.

(37) The EU ETS is a meaningful tool for climate financing. Since 2013, it has generated

substantial revenues, the majority of which are allocated to Member States, and it has

allocated free allowances of equally substantial value. To fully realise its potential, the

revenues from the ETS must be deployed strategically to accelerate decarbonisation

and thus bolster industrial competitiveness. While Member States have been required

since June 2023 to allocate all ETS revenues to climate and energy purposes and to

ensure transparency, current spending patterns reveal shortcomings. Critical areas,

such as industrial decarbonisation—which accounts for a major share of EU

emissions—receive disproportionately low funding, as do other areas that are essential

for decarbonisation. Furthermore, some investments risk undermining climate

neutrality by perpetuating dependencies on carbon-intensive technologies, thereby

creating long-term lock-in effects.

(38) Industrial decarbonisation will require direct or indirect electrification of processes

currently using fossil fuels including related investment needs of the energy system.

The Electrification Action Plan20 includes concrete measures to enable and accelerate

affordable electrification of industry. Preparing the energy system for the additional

demand from industrial decarbonisation projects, particularly around industrial

clusters, is an urgent priority. Using national ETS revenues to support investments into

strengthening the grid, into electricity storage and into other options that enhance

power system flexibility as well as into accelerated planning and permitting at local

and regional level will provide industry with affordable and reliable options to use

electrification in order to decarbonise.

(39) To address those aspects, the Member States should be required to spend a minimum

share of their revenues in priority purposes, focused on the decarbonisation of the ETS

sectors, including related investment needs of the energy system. This should include

investments in industrial decarbonisation (such as in steel, chemicals and fertilisers -

which play an important role to ensure food security) - through electrification, carbon

capture, utilisation, and storage, and other clean technologies; clean energy sources

and grid infrastructure; low-carbon transport (particularly in maritime and aviation);

waste management decarbonisation and circularity measures to decarbonise ETS

sectors; the development of lead markets for low-carbon and circular products (such as

bio-based fertilisers, bio-based chemicals and green steel) which also benefit end-users

such as farmers; and research and innovation in these fields. Priority should be given

to the electrification of industrial process heat where technically feasible, enhancing

energy security. Regarding fertilisers, investment should in particular support end-

users in the uptake of bio-based, organic and circular fertilisers, in line with the

Fertilizer Action Plan21. As regards nature-based solutions contributing to

decarbonisation, Member States should take into account the priorities, measures and

20 [Full reference to be added] COM(2026)595. 21 COM/2026/310 final.

EN 40 EN

financing needs identified in national restoration plans established pursuant to

Regulation (EU) 2024/1991. Additionally, investments should only be possible where

they are aligned with the Union’s long-term climate goals, excluding those prolonging

reliance on fossil fuels in power generation. Member States should also have the

option to use the revenues to top-up ETS financing mechanisms.

(40) Transparency and visibility regarding the use of auction revenues is essential to ensure

the acceptability and credibility of the Union’s climate policies. Member States should

be obliged to publicly communicate the origin of ETS-funded measures through

multiple channels, such as project documentation and public displays. The use of the

standardised EU label will be a key tool to achieve this visibility. Such reforms on the

use of auction revenues should be complemented by amendments to Regulation (EU)

2018/1999 of the European Parliament and of the Council22, which will require

Member States to integrate their planned use of ETS auction revenues into their

National Energy and Climate Plans (NECPs). This ex-ante planning obligation will

ensure strategic alignment with national and EU-wide climate targets, facilitate greater

stakeholder participation and improve monitoring, public scrutiny, and visibility.

(41) Member States report yearly to the Commission on the implementation of Directive

2003/87/EC pursuant to Article 21 thereof. On this basis, the Commission publishes a

report on the functioning of the European carbon market. The use of the reported data

in this way should therefore be clarified through the addition of a reference to Article

21(1) in Article 10(5) of that Directive. In order to align with existing practice, a

yearly reporting deadline of 30 June should be set. The Commission should publish

the report on the functioning of the European carbon market within six months of

receiving the relevant information and reports from the Member States. Besides the

publishing of this report, the self-standing reporting obligation for the Commission

under Article 21 should be deleted to reduce administrative burden. The exchange of

information organised by the Commission pursuant to Article 21(5) should no longer

concern the use of Emission Reduction Units from Joint Implementation (JI) and

Certified Emission Reduction from Clean Development Mechanism (CDM) in the EU

ETS as the CDM and JI have been replaced with the new market mechanism

established under the Paris Agreement.

(42) To mitigate the risk of carbon leakage and support the competitiveness of electro-

intensive industries, Member States should retain the possibility to grant State aid

compensating for indirect emission costs passed through electricity prices, in line with

Union State aid rules. For the State aid guideline post-2030, the Commission will

assess how to incentivise economically viable decarbonisation, while not undermining

the carbon leakage objective of the support. The emission factors used to calculate

compensation should reflect the emission intensity of the relevant electricity

production mix in the respective geographic area with a view to taking into

consideration where possible the role of fossil and non-fossil sources in the setting of

electricity prices. To streamline administrative processes, reporting on indirect cost

22 Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the

Governance of the Energy Union and Climate Action, amending Regulations (EC) No 663/2009 and

(EC) No 715/2009 of the European Parliament and of the Council, Directives 94/22/EC, 98/70/EC,

2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the European Parliament and

of the Council, Council Directives 2009/119/EC and (EU) 2015/652 and repealing Regulation (EU) No

525/2013 of the European Parliament and of the Council (OJ L 328, 21.12.2018, pp. 1–77, ELI:

http://data.europa.eu/eli/reg/2018/1999/oj).

EN 41 EN

compensation should be integrated into the broader reporting obligations on the use of

auction revenues under Regulation (EU) 2018/1999.

(43) Directive (EU) 2023/959 effected the revision of the EU ETS legislative framework by

introducing conditionalities for free allocation linked to the implementation of energy

efficiency recommendations from energy audits, and obligations to establish climate-

neutrality plans for district heating and for the 20% least efficient installations under

each ETS product benchmark. Building on the experience of conditionalities relating

to district heating, and in view of aligning with the climate neutrality ambition of the

EU, starting from the five-year period for free allocation beginning on 1 January 2031,

free allocation in the EU ETS should, as a principle, become

conditional on establishing a plan to invest in decarbonisation in the EU (‘Invest in EU

decarbonisation plan’) and to implementing decarbonisation investments that lead to

increased homegrown production of decarbonised and low carbon products as well as

to significant reductions in overall climate impacts, including emissions reduction.

Therefore, it is appropriate to replace other specific conditionality regimes for free

allocation, from 2031 onwards, by the decarbonisation investment in the EU

conditionality which is being introduced for free allocation.

(44) The Invest in EU decarbonisation plan should be simple and provide a structured and

transparent pathway, together with intermediate targets, for installations to align with

Union-wide climate-neutrality by 2050 as provided for in Regulation (EU) 2021/1119,

and should consider the impact of the measures and investments it includes on

achieving significant emissions reduction. The Invest in EU decarbonisation plan and

its content, should be verified in accordance with existing and well-established rules

under Article 15 and be made publicly available. In addition, in order to ensure that

emissions and impacts reduction occur in the EU, operators of installations applying

for free allocation should be required to invest in the EU an amount equivalent to the

financial value of 100% of their free allocation in the relevant five-year period into

decarbonisation of their activities covered by this Directive, effectively leading to

significant verified reductions in emissions, within the same period. What constitutes

‘significant emission reductions’ should be defined by the Commission by means of

delegated acts in a science-based manner and aligned with the climate neutrality

objective as set out in Regulation (EU) 2021/1192. Consequently, allowances

allocated for free become decarbonisation investment allowances in the EU.

(45) To minimise administrative burden and ensure alignment with the procedures leading

up to the determination of free allocation to installations, it is appropriate to make full

use of synergies with the well-established, highly efficient and mature process.

Therefore, the Invest in EU decarbonisation plan, as a one-off exercise for five or

more years, is to be submitted together with the data included in the national

implementation measures pursuant to Article 11 of Directive 2003/87/EC concerning

incumbent installations and together with the application for free allocation concerning

new entrants. With a view to ensuring the content of measures and investments

included in the Invest in EU decarbonisation plan reflects genuine emissions reduction

strategy, it is appropriate to provide flexibility for their submission at a later stage

together with activity-level change reports referred to in Commission Implementing

Regulation (EU) 2019/184223. Where appropriate, the detailed timeline for the

23 Commission Implementing Regulation (EU) 2019/1842 of 31 October 2019 laying down rules for the

application of Directive 2003/87/EC of the European Parliament and of the Council as regards further

arrangements for the adjustments to free allocation of emission allowances due to activity level changes

(OJ L 282, 4.11.2019, pp. 20–24).

EN 42 EN

submission of the Invest in EU decarbonisation plans should be clarified by the

Commission by means of delegated acts.

(46) 80 % of the amount of free allocation for the relevant five-year period for which the

application for free allocation is submitted should be allocated in annual tranches with

a regular transfer of free allocation after the approval of an Invest in EU

decarbonisation plan. The remaining 20 % of the amount of allowances to be

allocated for free in that five-year period should only be allocated to the installation

upon verification that the decarbonisation investments, which can include both captial

expenditure (‘CAPEX’) and operating expenditure (‘OPEX’), corresponding to the

economic value of 100% of the amount of free allocation for that period, were

implemented and that, based on the relevant existing and well-established annual

emissions reports, those investments led to significant emissions reduction by the end

of the five-year period. To further incentivise the long-term investment in the Union,

operators should be required to return the allowances received under Article 10a(3c)

first sub-paragraph, if the operator relocates or otherwise transfers its relevant

activities outside of the Union. In order to further design the processes as simple and

efficient as possible and reflect well-established industrial practices, while also

guaranteeing the strategic investments in modernising European industries, it is

appropriate for the Commission to further operationalise those rules by clearly

establishing, by means of delegated acts and, in close consultation and transparently

with the relevant stakeholders, the list of requirements and eligible costs to qualify as

decarbonisation investments as well as the methodology for determining the economic

value of the quantity of free allowances received. In order to further reduce

administrative burden, maximise synergies with existing industrial practices and to

fully reflect the specific circumsances of the industrial sectors covered by the EU ETS,

these delegated acts should be developed in close cooperation with the industry.

(47) To minimise administrative burden and ensure robust compliance, the implementation

of the decarbonisation investments in the EU and the achievement of significant

emissions reduction should be verified, no later than two years after the end of the

relevant five-year period, on the basis of the already-required annual emissions and

activity level reports submitted in the context of the existing solid monitoring,

reporting and verification processes. Any unallocated or returned allowances from the

amount of free allocation under the relevant five-year period should be used in the

context of free allocation in the next period.

(48) To ensure synergies with the new Investment Booster (‘IB’) and Industrial

Decarbonisation Bank (‘IDB’) and the Innovation Fund, derogations to the newly

established investment conditionality rules for free allocation should apply to

installations selected for support under those funds. In view of simplifying procedures

and avoiding additional administrative burden, it is appropriate to exempt the

operators of installations from the establishment an Invest in EU decarbonisation plan,

where a project in their installation was selected for the award of support under the

IDB or the Innovation Fund is being implemented during the relevant five-year period

for free allocation. The first 80 % of the amount of free allocation for the relevant five-

year period should be allocated to the installation following the decision to award

support to the project under those funds. In addition, for those installations, the

investments and emissions reduction requirements conditioning the remaining 20 % of

free allocation for the period should be deemed fulfilled upon the double condition

that the support under the Innovation Fund starts being disbursed or physical

construction concerning projects supported by the IDB or IB starts, and that it has

EN 43 EN

been verified that eligible costs correspond to a volume at least equivalent to the

economic value of 100% of the amount of free allocation under the relevant five-year

period were invested. Given the number of operators expected to benefit from the

support made available under the Innovation Fund, IDB and IB, this will automatically

lead to these operators being exempt from the conditionality and, hence, further

simplify their access to free allocation.

(49) To recognise their efforts and reduce administrative and compliance burdens for the 10

% most efficient installations setting the revised benchmark values in a sector or

subsector in accordance with Article 10a(2), third subparagraph of Directive

2003/87/EC, for zero and low emitting installations, and for small installations

remaining voluntarily under the ETS, it is appropriate to exempt them from the

investment conditionality rules for free allocation.

(50) The exempted installations should be eligible for the full amount of free allocation

under the five-year period in which they apply for free allocation, without being

required to establish an Invest in EU decarbonisation plan or to implement investments

in the EU leading to significant emissions reductions. When determining by means of

delegated acts the requirements for installations to qualify as zero emissions or low

carbon, the Commission should take into account the estimated sector specific

emissions reductions, the climate-neutrality objective set out in Article 2(1) of

Regulation (EU) 2021/1119, as well as the available low carbon technologies and

other abatement options available for each sector, including the net-zero technologies

listed in Article 4 of Regulation (EU) 2024/173524.

(51) To reflect sectoral capacities and accommodate, on the one hand, uneven access of

individual installations to decarbonisation solutions, including access to infrastructure

such as electricity grids of sufficient capacity, green hydrogen and carbon dioxide

transport infrastructure, and, on the other hand, geographic disparities, it should be

permitted to leverage collective efforts towards decarbonising production processes

between different installations, including for installations in multiple Member States.

It is therefore appropriate to allow for the conditionality requirement concerning the

investments in significant emissions reductions in the EU to be fulfilled via pooling

through a joint decarbonisation investment agreement between several ETS

installations. This should allow flexibility for one or more operators to fulfil the

decarbonisation investment requirements on behalf of other operators that are part to

the agreement. To reflect emissions and capacities of such a pool, it is appropriate to

require that, in that case, the investment volume corresponds to at least 100% of the

amount of free allocation allocated to all installations in the pool during the five-year

period. To limit administrative burden and ensure integration within the process

leading up to the establishing of free allocation to installations in the EU, such an

agreement should at least apply for the five-year period referred to in Article 11 of

Directive 2003/87/EC for which the installations are applying for free allocation and

should be concluded before any of the installation from the pool submits an

application for free allocation. A higher level of emission reduction should be required

for the installation or installations that will make the investment on behalf of the pool.

The Commission should further operationalise, by means of implementing and

delegated acts, the details of the application procedure to form a pool, including the

24 Regulation (EU) 2024/1735 of the European Parliament and of the Council of 13 June 2024 on

establishing a framework of measures for strengthening Europe’s net-zero technology manufacturing

ecosystem and amending Regulation (EU) 2018/1724 (OJ L, 2024/1735, 28.6.2024,

ELI: http://data.europa.eu/eli/reg/2024/1735/oj).

EN 44 EN

minimum content and detailed conditions for the application to form a pool, the

detailed timeline for its submission to the competent authority, and the details of the

distribution of liability and obligations between operators that form a pool. This

pooling provision will also significantly reduce administrative burden on the operators

that pool together, because any conditionality-related monitoring and reporting

obligation will be carried out only by the designated installation or installations within

the pool.

(52) Rules governing the update of the benchmark values need to be established for the

allocation periods from 2031 to 2040. As already applied under the previous periods,

the updated benchmark values should be determined on the basis of data from the

years 2007 and 2008, to be updated in line with observed improvement through

applying a factor that represents the best assessment of progress across sectors over

the period and considering the average performance of the 10 % most efficient

installations in the relevant years. Robust, objective and verified data from

installations, submitted pursuant to Article 11 of this Directive should be used as

reference for the determination of the average performance of the 10 % most efficient

installations so that benchmark values reflect the actual rate of improvement.

Information submitted by a third country for installations in its territory in accordance

with an agreement concluded pursuant to Article 25 may also be taken into account.

To ensure appropriate protection against the risk of carbon leakage and ensure

sufficient free allocation levels better reflecting the actual decarbonisation pathway of

industrial sectors for the period from 2031 to 2040, the same minimum update rate

percentages as for the ongoing period from 2026 to 2030 should apply, while the

maximum update rate percentages for the same period should be updated to reflect this

necessity. Therefore, the benchmark values should be adjusted in respect of each year

between 2008 and the middle of the periods from 2031 to 2035 and from 2036 to

2040, as applicable, in a range comprised between a minimum update rate of 0,3 %

and a maximum update rate of 2 %, leading, in the period from 2031 to 2035, to an

improvement of 7.5 % to 50 % respectively compared to the value applicable in the

period from 2013 to 2020.

(53) To better reflect available emissions reduction capacities in different industrial sectors,

it is appropriate to establish sector-specific heat and fuel benchmarks (‘fallback

benchmarks’). To do so, it is necessary to complement the existing empowering

provision and allow the Commission to define such sector-specific fallback

benchmarks in the Union-wide ex-ante benchmarks of Annex I to Delegated

Regulation (EU) 2019/331, their system boundaries and the reference values for the

determination of the annual update rate.

(54) In the event that demand for free allowances triggers the need to apply a uniform

cross-sectoral correction factor before 2040, the share of allowances to be auctioned

over the ten year period beginning on 1 January 2031 should be reduced by up to 4 %

of the total quantity of allowances.

(55) Leftover allowances from the free allocation buffer established in Article 10a(5a) of

Directive 2003/87/EC should be used to support the Innovation Fund and to support

the scale-up and roll-out of more mature technologies in energy-intensive industries

through the Investment Booster and the second phase of the Industrial Decarbonisation

Bank. Where the allowances available are not sufficient to allocate 400 million

allowances to the Investment Booster, these should come from the leftover allowances

from the new entrants reserve provided for in Article 10a(7) of Directive 2003/87/EC.

To ensure that the size of the new entrants’ reserve is sufficient for the upcoming

EN 45 EN

phase of the EU ETS, it should be allocated allowances from the phase-out of free

allocation due to the phase-in of carbon border adjustment mechanism (CBAM) and

allowances should not be returned to the MSR.

(56) To avoid penalising new entrants and therefore limiting possible decarbonisation

investments, it is appropriate to delete the application of the linear reduction factor to

allocations to new entrants under Article 10a(7) of Directive 2003/87/EC.

(57) To ensure the correct implementation of rules related to the allocation of allowances

and equal treatment of operators and to prevent windfall profits, it should be clarified

that competent authorities are under an obligation to require the operator to return any

excess allowances and to instruct the national administrator to transfer returning

excess allowances to the EU Allocation Account.

(58) In accordance with the commitment set out in Article 4(5), point (m) of Regulation

(EU) 2021/1119, and considering a slower phase-out pathway for free allocation of

allowances from 2028 onwards to support decarbonisation, investment and

employment in the Union, while minimising the risk of carbon leakage, additional

conditional free allocation should be provided for CBAM sectors. To provide for this

in a manner that is compliant with international trade rules and takes into account the

decarbonisation of installations in the Union, while minimising additional

administrative burden, it is appropriate to reduce the phase-out of free allocation in

those sectors, with free allocation being phased out fully by the end of 2037. In view

of ensuring an achievable phase-in of CBAM factor in free allocation to CBAM goods

that will be newly included as a result of future revisions of Regulation (EU)

2021/1119, it is appropriate to provide for specific phase-out rates for those new

CBAM goods, applying as of the five-year period for free allocation that starts after

their inclusion in the scope of Annex I to that Regulation. In line with this Directive

introducing investment conditionality rules for free allocation in the EU ETS from

2031 onwards, those conditionality rules should apply from 2031 onwards also for free

allocation to installations to which the CBAM factor is applied.

(59) To maintain adequate protection against the risk of carbon leakage, transitional

measures to support certain energy intensive industries in the event of carbon leakage

should continue applying until 31 December 2040, except where specific phase-out

provisions apply. Free allocation to district heating should be phased out by equal

amounts starting in 2030 in view of achieving zero free allocation in 2040.

(60) Achieving the EU’s 2040 climate target necessitates urgent and deep emission

reductions in industry, particularly in energy-intensive sectors, where progress has

thus far relied predominantly on energy efficiency gains rather than transformative

decarbonisation. At the same time, to drive industrial transition substantial investments

are required. Yet, the existing carbon price signal, even when combined with

regulatory measures on renewables and energy efficiency, has proven insufficient to

incentivise industrial decarbonisation investments, thereby justifying the allocation of

allowances to a dedicated EU-level funding instrument, the Industrial Decarbonisation

Bank, designed to bridge this gap and accelerate industrial decarbonisation, including

through electrification, and enhance Europe’s competitiveness. Member States should

be allowed and encouraged to make additional contributions from ETS allocations and

related revenues to the Bank to further accelerate industrial decarbonisation in line

with national priorities.

(61) The Innovation Fund should continue to support innovative low-carbon technologies

across all eligible sectors, including those covered by the CBAM, to ensure that

EN 46 EN

breakthrough solutions reach commercial scale, bridging the gap between

demonstration and market readiness in the transition. It should therefore continue to

focus on innovation, supporting early-stage, high-risk technologies, while the

Industrial Decarbonisation Bank (IDB) should support the scale-up and roll-out of

more mature technologies in energy-intensive industries while building resilient value

chains and contributing to energy system integration. Electrification will be a prime

decarbonisation pathway as outlined in the Electrification Action Plan. Alignment

with the requirements of the Net-Zero Industry Act and the Industrial Accelerator Act,

including regarding EU content, as well as circular economy principles, should be

ensured. With its comprehensive approach from abatement to transformation and its

more focused sectoral scope, the Industrial Decarbonisation Bank should support both

the decarbonisation of existing installations and the deployment of new low-carbon or

zero-emission production capacity, including processes that substitute carbon-

intensive industrial products or methods, also by bio-based material, products and

methods, and as such can also result in the generation of permanent carbon removals.

In this context, also combustion activities below 20 MW should be able to benefit

from the support. In order to preserve the Union’s capacity to support the

development, scale-up and deployment of innovative low-carbon technologies, it is

necessary to ensure that the overall financial means expected for the Innovation Fund

remain available. 50 million allowances from the free allocation buffer up to 2030

were envisaged to contribute to the financing of the Innovation Fund, thereby

providing an essential planning assumption for the timely preparation and

implementation of projects towards the end of this decade. By 2028, the Innovation

Fund should have committed almost all of its available resources and continued

support for such projects requires timely replenishment from the Member States’

auction volume and a predictable funding basis, notably where, due to the operation of

the rules on free allocation, part of the allowances originally envisaged from the free

allocation buffer available for the Innovation Fund would no longer be available for

that purpose.

(62) The first phase of the Industrial Decarbonisation Bank should be the ETS Investment

Booster financed by 400 million allowances. To fast-track decarbonisation

investments through speed, the ETS Investment Booster, operating on a ‘first in, first

served’ basis, should provide fixed carbon premia per tonne of CO₂ avoided and paid

in ETS allowances. It should also ensure solidarity by ringfencing allowances for

Member States facing higher investment challenges due to lower income or greater

abatement needs. Administratively set fixed carbon premia, should ensure

economically attractive returns, compensate for commercial risks, and secure

additional private financing, while requiring strict completion deadlines and

guarantees thereby enhancing business certainty upfront and enabling faster

implementation. In order to ensure the best value for money, the Commission should

develop Terms and Conditions for differentiated decarbonisation pathways, setting

inter alia the fixed carbon premium rate per tonne of CO2 avoided, based on a funding

gap analysis using the best available knowledge regarding the specific type and cost of

the technologies supported as well as taking into account the need to ensure the

proportionality of the support. The Commission should periodically assess those

Terms and Conditions in the light of the experience gained and market developments.

(63) The Investment Booster should be followed by a second phase whereby the Industrial

Decarbonisation Bank would continue to support the scale-up and roll-out of mature

decarbonisation technologies for energy-intensive industries, including through

guaranteeing a level of the carbon price, thereby de-risking investments and ensuring

EN 47 EN

long-term revenue stability for decarbonisation efforts through mechanisms such as

Carbon Contracts for Difference (CCfDs) or fixed carbon premia , disbursed upon

verified GHG abatement, and accelerating industrial decarbonisation. In implementing

the Industrial Decarbonisation Bank phase 2, the Commission should strive to ensure

effective, quality-based geographical coverage across the Union. To boost Europe’s

industrial decarbonisation and turn every euro into investment early-on, the Industrial

Decarbonisation Bank must move fast. Once the Investment Booster has fully

deployed its allowances, the Industrial Decarbonisation Bank should open Phase 2,

ensuring continued firepower for industrial decarbonisation well before 2031.

(64) To ensure coherent and reinforced support for industrial decarbonisation, enhancing

both climate and competitiveness objectives, the Commission should maximise

synergies between the Industrial Decarbonisation Bank (IDB) and the European

Competitiveness Fund (ECF). To this end, the proposed ‘competitiveness seal’ should

be awarded to projects fulfilling all requirements for support under the Industrial

Decarbonisation Bank, thereby streamlining access to complementary funding.

(65) The Modernisation Fund plays a critical role in ensuring fairness and solidarity by

supporting lower-income Member States in their transition to a climate-neutral

economy. To enhance its effectiveness and align it with the Union’s 2040 framework

targeted adjustments are necessary. Sized at 2,0% of the overall ETS cap, it will ensure

a balanced allocation of resources, optimising support where it is most needed while

reflecting the evolving economic capacities of Member States. To accelerate industrial

decarbonisation required to meet the 2040 climate target, an additional 0.5% of the

ETS cap should be allocated to beneficiary Member States through the Industrial

Decarbonisation Bank. Together with an expanded scope, this will provide financial

support to a broader range of innovative, scalable solutions critical to reducing

emissions in energy-intensive industries and power generation, including CCS and

CCU and electrification, while ensuring efficient use of auction revenues. In addition,

allowances available to the Modernisation Fund beneficiaries via 10% redistribution

for reasons of solidarity should be channeled through the Modernisation Fund to

maximise their impact. For the same reason, the other Member States benefitting from

the 10% solidarity redistribution should use those allowances for priority areas for

spending of auction revenues. Member States should further be permitted to

voluntarily transfer additional allowances from their auction volumes to the

Modernisation Fund, enhancing their flexibility to direct resources toward impactful

decarbonisation efforts. The eligibility criteria and distribution key should be updated

based on the latest available data (2022–2024), including a 75% GDP per capita

threshold and emissions intensity. This will reflect current economic and emissions

data, ensuring that the Member States with the greatest transition needs continue to

benefit. The Modernisation Fund’s scope should be broadened to further facilitate

industrial decarbonisation, including, where relevant, support for investments in CCS,

CCU, electrification and production of affordable low-carbon fertilisers. In order to

protect the financial interests of the Union, support under the Modernisation Fund

should be implemented in accordance with Regulation (EU, Euratom) 2020/209225.

(66) This Directive should include strong safeguards concerning the principles of the rule

of law as set out in Article 2(a) of Regulation (EU, Euratom) 2020/2092 of the

European Parliament and of the Council to protect the resources of the Modernisation

25 Regulation (EU, Euratom) 2020/2092 of the European Parliament and of the Council of 16 December

2020 on a general regime of conditionality for the protection of the Union budget (OJ L 433I,

22.12.2020, p. 1).

EN 48 EN

Fund. Should there be breaches of these principles, appropriate measures should be

taken, applying the procedure set out in Article 6 of Regulation (EU, Euratom)

2020/2092.

(67) In line with Article 28b(3) of Directive 2003/87/EC, the extension of the geographic

scope of application of the EU ETS in respect of aviation activities should be

accompanied by the possibility for aircraft operators to deduct costs incurred from

Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)

offsetting on extra-European routes from the EU ETS surrender obligation, in order to

avoid double charging. Harmonised rules should apply in relation to such deductions,

and therefore, for the calculation of the deduction the values of credits and allowances

published in a Carbon Market Report adopted pursuant to Article 10(5) of Directive

2003/87/EC should be used. The value of credits eligible under Article 11a should be

based on the best available price indices.

(68) The geological storage of CO₂ in secure, permanently monitored sites is essential to

enabling large-scale emissions reductions for industry. Proximity and accessibility of

storage sites in third countries to EU industrial hubs could reduce transportation costs,

minimise leakage risks and accelerate the deployment of CCS compared to more

distant or less developed storage options, thereby facilitating this decarbonisation

pathway for EU industry. However, storage in third countries should be only

recognised when sufficient safeguards regarding monitoring, reporting, verification

(MRV) and with respect to the rules set out in Directive 2009/31/EC exist; with a

linked system to the EU ETS pursuant to Article 25 on a reciprocal basis as from 2031

and providing the sites are not used for enhanced oil or gas recovery.

(69) Under the current EU ETS framework, CO₂ emissions are accounted at the point of

capture (upstream), meaning that installations capturing CO₂ must surrender

allowances for the full volume of emissions generated, except where the CO₂ is

permanently stored geologically or in products. This does not contribute to achieving

the objectives of the EU’s Industrial Carbon Management strategy, which seeks to

scale up CCU as a key decarbonisation pathway for hard-to-abate sectors like cement,

steel, and chemicals and to ensure the availability of alternative carbon feedstocks.

The inclusion of waste incineration means that most stages of the life of a product in

which captured carbon is used are subject to carbon pricing, allowing the accounting

of emissions to be moved at the point of their release from products into the

atmosphere without a high risk of under accounting. As a result, in those cases where

carbon dioxide is captured and used in intermediate or final products from which the

carbon is expected to be re-emitted in activities already covered by the EU ETS, such

as synthetic fuels, chemicals, or other industrial feedstocks, the obligation to surrender

allowances should be deferred—rather than eliminated—until the CO₂ is released in a

process listed in Annex I (downstream). Conversely, when CO₂ is used directly

without binding its carbon chemically in a product, it should continue to be accounted

upstream at the point of capture as the eventual release of that CO₂ will take place

outside of the EU ETS, in agri-food, pharmaceuticals, fire extinguishers or other

similar applications. The point of accounting of captured carbon embedded in

synthetic fuels should take place when these are distributed (midstream), instead of at

point of combustion of synthetic fuels in industrial facilities or in the transport sector.

To ensure complete coverage of all carbon dioxide emissions of the carbon capture

and utilisation chain, the ETS scope should be extended to the capture of carbon for

use, captured carbon processing, liquefaction and similar services, and the transport of

captured carbon for use, except for CO₂ for direct utilisation The Commission should

EN 49 EN

be empowered to establish a list of those CCU applications from which the carbon is

expected to be re-emitted in activities already covered by the ETS. In addition, the

permanent capture of carbon dioxide in physical objects that are not products, should

also be recognised. Due to the uncertainty regarding the end-of-life treatment each of

type of utilisation, the Commission should also be empowered to establish de minimis

thresholds for the risk of remission outside of the EU ETS and may introduce

measures, such as partial surrender requirements, to address cases where the near

threshold is exceeded.

(70) Emissions from municipal waste incineration installations are substantial and have

been subject to a monitoring, reporting and verification obligation since 2024, with a

requirement to assess by 31 July 2026 the feasibility of its full inclusion in the EU

ETS. On the basis of this assessment, it is considered appropriate and feasible to

amend Directive 2003/87/EC to include emissions from municipal waste incineration

installations in the EU ETS. The extension of the EU ETS to municipal waste

incineration, as part of a comprehensive approach with strengthened circular economy

policies under Regulation (EU) […./..] of the European Parliament and of the Council

Circular Economy Act26 and complemented with enabling conditions, incentivises

economy-wide decarbonisation, circularity of materials and carbon, and a level

playing field within and between sectors. As such, the inclusion of municipal waste

incineration in the EU ETS contributes to the ambitions set out in the Competitiveness

Compass and the Clean Industrial Deal to decarbonise the economy, accelerate the

transition to more circularity, and establish a clear link between incentives for

decarbonisation and circularity, increasing the EU’s economic security, resilience and

competitiveness. The carbon price signal complements circular economy policies by

financially incentivising and supporting the business case for carbon capture as a main

decarbonisation pathway for the sector towards the 2050 economy-wide climate

neutrality objective, reducing fossil emissions from incineration while fostering

permanent carbon removals from biogenic emissions, supporting economy-wide

decarbonisation. The carbon price signal on incineration further reinforces the business

case for more circularity of materials, reducing GHG emissions from waste disposal

and generating recycled materials displacing more carbon-intensive virgin materials.

Furthermore, an extension of the EU ETS levels the playing field for industrial

installations and clean energy production by harmonising the carbon price signal with

co-incineration, power generation and district heating production already covered

under the EU ETS.

(71) The carbon price signal and circular economy policies are mutually reinforcing. The

hierarchical principles of waste management, as established in the EU Waste

Framework Directive 2008/98/EC27, prioritise prevention, reuse, recycling, and

recovery over disposal, including incineration, and emphasise the need to reduce the

environmental impact of waste at every stage of its lifecycle. The carbon price will

complement regulatory and fiscal policies with a harmonised incentive and support for

waste management in line with the higher steps of the waste hierarchy through

improved waste prevention, preparing for reuse, separate collection, sorting and

recycling. More circularity in turn reduces GHG emissions from waste management

and displaces more carbon-intensive virgin materials. However, carbon emissions

generated during the incineration of waste are not solely determined by the

26 [OJ reference to be added once adopted]. 27 Directive 2008/98/EC of the European Parliament and of the Council of 19 November 2008 on waste

and repealing certain Directives.

EN 50 EN

incineration process and the pre-treatment carried out by operators. These emissions

are also influenced by upstream activities, including the availability and utilisation of

recycling, reuse, and composting infrastructure; the effectiveness of separate collection

schemes for recyclable and recoverable materials; the extent of separation at source by

households, commercial actors, and public authorities; the consumption patterns of

products and materials; and the design and lifespan of goods. Therefore,

complementary waste policies under Regulation (EU) […./..] [Circular Economy Act]

will contribute to ensure a comprehensive approach by stimulating the single market

and demand for secondary materials and circular products, supporting investment in

recycling capacity, reducing the landfilling and incineration of used raw materials, and

rolling-out upstream producer-oriented policies such as eco-design requirements and

strengthened Extended Producer Responsibility.

(72) A new activity for waste incineration and co-incineration should be established in

Annex I. The installations covered by the scope of this activity should be defined in

line with the definition of waste incineration plants and waste co-incineration plants in

Directive 2010/75/EU of the European Parliament and of the Council, for non-

hazardous waste. This new activity includes emissions from co-incineration, which

were already covered by Directive 2003/87/EC as part of the activity ‘Combustion of

fuels’28, so that the incineration and co-incineration of waste can be part of a single

activity. In addition, units for the incineration of municipal waste should be included

in the greenhouse gas emission permits of an EU ETS activity. To this end, the current

exemption of such units should be deleted in point 5 of Annex I to Directive

2003/87/EC. The recovery of waste through chemical recycling activities, including

thermal treatment processes such as pyrolysis or gasification, is not covered by the

extension of the scope of the EU ETS to the extent that the substances resulting from

the treatment are not subsequently incinerated. To ensure regulatory consistency,

accommodate the specific characteristics of waste as a feedstock, and promote

environmental integrity through robust and comprehensive coverage avoiding

threshold effects from diversion to smaller, less efficient installations, the capacity

threshold for this activity should be aligned with Annex I, point 5.2.(a) of Directive

2010/75/EU as installations with a capacity exceeding 3 tonnes per hour .

Implementing Regulation (EU) 2018/2066 should be reviewed and updated

accordingly regarding the monitoring and reporting rules for emissions from municipal

waste incineration installations.

(73) Hazardous waste incineration, meaning incineration or co-incineration plants

predominantly treating hazardous waste, should remain excluded from the EU ETS as

the carbon price signal is not expected to incentivise cost-effective decarbonisation.

The strict regulatory, technical and operational requirements limit alternative treatment

options for hazardous materials that cannot be safely recycled, recovered, or treated by

other means. In addition, operators do not have significant opportunities for permanent

carbon removal generation due to the limited share of biogenic carbon in hazardous

waste streams. The risk of municipal waste diversion to hazardous waste incineration

installations is constrained by the prevailing regulatory framework, technical and

operational differences in the incineration process, and the associated high incineration

cost for hazardous waste incineration.

28 In line with the interpretation of the Commission set out in Guidance Document No. 0: Guidance on

Interpretation of Annex I of the EU ETS Directive (excl. aviation and maritime activities):

https://climate.ec.europa.eu/document/edc93136-82a0-482c-bf47-39ecaf13b318_en.

EN 51 EN

(74) To ensure a smooth transition of the sector in the EU ETS, the surrendering of

allowances by municipal waste incineration installations that become subject to the

system from 2031 onwards should be gradually introduced with respect to verified

emissions reported for the period 2031 to 2034. This staged integration should not

apply to installations currently already included in the EU ETS. Several reasons

support a staged integration of the compliance obligation rather than immediate full

inclusion. The start from 2031 allows for technical and administrative preparation, in

particular for the development of monitoring and reporting rules that are better tailored

to municipal waste incineration, including the distinction of biomass and fossil

emissions. The start from 2031 combined with the phase-in allows planning and

investment predictability for operators and local authorities, including for the

adjustment of contractual arrangements between local authorities and incinerators. It

also enables prior investment support, including through ETS revenue use, in

abatement measures for installations and local authorities. Phasing-in surrender

obligations for municipal waste incineration also contributes to the convergence

towards the landfilling target established in Article 5(5) of Directive 1999/31/EC29

while allowing to strengthen complementary circular economy policies at EU, national

and local level to support waste prevention, reduction, collection, sorting and recycling

and address landfilling, avoiding any unintended consequences in terms of waste

diversion contrary to the waste hierarchy. To protect the environmental integrity of the

system, the number of allowances added to the cap in respect of the sector should be

proportionate to the gradually increasing surrender obligation for those years. The

figures relating to the inclusion of municipal waste incineration should be derived

from the data monitored and reported for the sector under Directive 2003/87/EC for

2024 in the Union and the States of the EEA and the EFTA), adjusted, from 2024 until

2031, by projections for estimated reporting data and capacity developments. The

number of allowances added to the total Union-wide quantity of allowances in respect

of the sector should be commensurate to the phase-in trajectory from 2031 to 2034,

equivalent to 25% of that total number in 2031, 50% of that total number adjusted by

the linear reduction factor in 2032, 75% of that total number adjusted by the linear

reduction factor in 2033, and 100% of that total number adjusted by the linear

reduction factor as of 2034. As from 2035, municipal waste incineration installations

should surrender the number of allowances corresponding to all of their verified

emissions reported in the preceding year.

(75) To further ensure a smooth transition, where a Member State has equivalent measures

in place that achieve the objectives for including municipal waste incineration in

Directive 2003/87/EC, a temporary opt-out possibility should be introduced until the

end of 2035. To ensure compatibility with decarbonisation, material and carbon

circularity and a level playing field, the option of applying that derogation should be

available only where a Member State can demonstrate it meets at least two out of the

following three conditions: having an equivalent national carbon tax in place with a

tax rate higher than the average auctioning price for the relevant year; it is on track to

achieve the EU municipal waste recycling targets under Article 11(2)(d) and (e) of

Directive 2008/98/EC; and it is on track to achieve the municipal waste landfill target

under Article 5(5) of Directive 1999/31/EC. To ensure stability and transparency of

the system, the request, including the relevant information to demonstrate compliance

29 Directive 2008/98/EC of the European Parliament and of the Council of 19 November 2008 on waste

and repealing certain Directives (OJ L 312, 22.11.2008, p. 3–30 (ELI:

http://data.europa.eu/eli/dir/2008/98/oj)

EN 52 EN

with at least two out of the three conditions, should be notified to the Commission by

31 July 2029. The temporary nature of this derogation is important to ensure

compatibility with moving the accounting of emissions where carbon dioxide is

captured and used in intermediate or final products (CCU) to the point of their release

from products into the atmosphere while preventing a high risk of underaccounting.

(76) Taking into account the special characteristics and permanent constraints of the

outermost regions of the Union as recognised in Article 349 of the Treaty on the

Functioning of the European Union (TFEU), and given their constraints in deploying a

comprehensive waste-management ecosystem at scale and distance from recycling

markets, an option is provided for Member States to temporarily exempt installations

located in the outermost regions from the surrender obligation for waste incineration

and co-incineration pursuant to Directive 2003/87/EC.

(77) To drive meaningful behavioural change at all stages of the waste value chain and

ensure the effectiveness of the carbon price in fostering circularity and

decarbonisation, it is important that the price signal is reflected in pricing mechanisms

and channelled through targeted measures and policies with a positive steering effect

offering households and non-residential actors both an incentive and a choice to avoid

the cost of mixed waste disposal through waste prevention, reduction and sorting.

Such measures with a proven positive impact on waste reduction, sorting and

recycling include, for example, modulated gate fees, Pay-As-You-Throw, weight-

based and smart bin collection schemes, deposit return schemes, or mandatory separate

collection schemes for specific waste streams. Those measures should be

complemented by reinforced upstream application of the polluter pays principle

through measures such as strengthened harmonised Extended Producer Responsibility

schemes and eco-design requirements. Member States should use revenues from

emissions trading to support competent authorities, in particular local authorities,

involved in the collection and disposal of municipal waste in the implementation of

those circular economy measures, in order to steer waste disposal in line with the

waste hierarchy, manage the impacts for households, and ensure a smooth transition

for the waste sector, balancing environmental benefits and circularity with the cost of

waste management as a public service.

(78) The extension of the carbon price to municipal waste incineration should be

accompanied by effective measures to continue reducing landfilling and avoid

unintended consequences in terms of waste diversion contrary to the waste hierarchy.

This risk is mitigated by the fact that sustainable biomass emissions from incineration

are zero-rated, limiting the incentive for organic waste diversion to landfilling -where

it is the main source of methane- to avoid having to pay the carbon price. However, a

risk of diversion of fossil-based material remains where no effective regulatory or

fiscal landfill policies are in place. Therefore, effective and reinforced implementation

and enforcement of policies and measures to limit the share of municipal waste

landfilled to 10% or less by 2035 as established in Directive 1999/31/EC is essential.

Furthermore, monitoring and reporting, as well as verification and accreditation of

emissions from landfilling of municipal waste should be developed in the future to

monitor the development of methane emissions following the full extension of the EU

ETS to emissions from municipal waste incineration. Uncertainty in the quantification

of emissions from landfills remains high. Harmonised monitoring and reporting

frameworks to collect standardised, robust and verified emissions data should

therefore first be established to ensure a high degree of integrity in the system. The

development of accurate monitoring and reporting rules is conditional on the

EN 53 EN

development, first, of the future Best Available Techniques for Landfills to ensure

environmental integrity, regulatory consistency and the use of advanced monitoring

tools, including measurement and modelling methods, and second, of a comprehensive

landfill register or registers to avoid circumvention and ensure its effectiveness. For

this purpose, the Commission should report by 31 July 2029 whether these enabling

conditions have been fulfilled for the MRV to be developed by 2031 at the point of the

start of the phase-in of municipal waste incineration. In case one of these conditions

have not been fulfilled, the extension of the EU ETS to landfills for MRV should be

postponed from 2031 to 2034, at the point of full integration of municipal waste

incineration, to allow additional time for these conditions to be fulfilled. The

Commission should review Directive 2003/87/EC by 31 December 2034 in light of

these developments and any unintended consequences.

(79) Carbon can be captured for storage and utilisation in installations that have emissions

resulting from a mix of fossil and zero-rated sources, such as from the combustion of

sustainable biomass, which is zero-rated in the EU ETS. As CO2 from zero-rated

sources and from fossil sources are treated different for the purposes of determining

the compliance obligations of EU ETS, generating removals or in the production of

synthetic fuels, it is necessary to establish detailed rules regarding the order of which

the different types of CO2 are considered to be captured and how to account for their

emissions across the carbon capture, transport, utilisation or storage chain.

(80) In order to ensure a proper functioning and management of the EU ETS, it is

appropriate to allocate to the Commission up to 5 million allowances from the Union-

wide quantity of allowances. In line with the increased number of users and the

increased coverage of the EU ETS, the growing value of allowances held in the Union

Registry and the increased security challenges, those revenues should in particular be

used to ensure the proper functioning, management and security of the Union Registry.

In line with the increased coverage of the EU ETS and changes introduced by this

Directive, it is appropriate to ensure that those revenues may be used for other aspects

of ensuring the proper functioning and management of the EU ETS, including on

implementing the rules on investment conditionality for free allocation, and operation

of the facility for the purchase of high quality and high integrity international credits.

Conditions, modalities and procedures concerning the use of those revenues should be

detailed by the Commission in delegated acts.

(81) For coherence with the treatment of emissions from biomass that complies with the

sustainability criteria and greenhouse gas emission-saving criteria for the use of

biomass established by Directive (EU) 2018/2001 of the European Parliament and of

the Council30, and other zero-rated emissions in the EU ETS, carbon dioxide captured

from the atmosphere or from sources with an emission factor of zero, should also have

an emissions factor of zero when released in an activity in the EU ETS. For coherence

with the treatment of emissions from biomass that that complies with the sustainability

criteria and greenhouse gas emission-saving criteria for the use of biomass established

by Directive (EU) 2018/2001 of the European Parliament and of the Council31, and

other zero-rated emissions in the EU ETS, carbon dioxide captured from the

30 Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the

promotion of the use of energy from renewable sources (OJ L 328, 21.12.2018, pp. 82–209, ELI:

http://data.europa.eu/eli/dir/2018/2001/oj). 31 Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the

promotion of the use of energy from renewable sources (OJ L 328, 21.12.2018, pp. 82–209, ELI:

http://data.europa.eu/eli/dir/2018/2001/oj).

EN 54 EN

atmosphere or from sources with an emission factor of zero, should also have an

emissions factor of zero when released in an activity in the EU ETS. As an exception,

that same CO2 should be subject to a surrender obligation when the CO2 is leaked,

vented or otherwise released from a permanent geological storage site, as the CO2 will

have received a reward as a negative emission under Regulation (EU) 2024/3012,

which relies on the EU ETS for the liability for reversals.

(82) In accordance with Article 28b(2) of Directive 2003/87/EC, the Commission

assessedg the environmental integrity of the global market-based measure of the

International Civil Aviation Organization (ICAO). That report showed that CORSIA

has not been strengthened and that states listed in the implementing act adopted

pursuant to article 25a(3) of the ETS Directive represent less than 70% of international

aviation emissions. Therefore, in accordance with Article 28b(3) of Directive

2003/87/EC, the scope of the EU ETS should be extended in a non-discriminatory way

to cover all flights departing from an airport situated in the EEA and landing in

aerodromes in third countries, no further than 5 000 kilometres from the largest

aerodrome in the geographical centre of the Union. All airlines on these routes should

be treated equally. Moreover, the EU ETS support for alternative fuels and for action

in relation to contrails should be available to all airlines on those routes. This scope of

application is around half the maximum distance of flights from the centre of Europe,

taking account of analysis which indicates such routes are most susceptible to potential

hub leakage. This coverage should apply from 2029 rather than 2027, for a period of

four years and be dependent on the review in 2032.

(83) Directive 2003/87/EC should be amended so that ICAO’s CORSIA scheme is

implemented into EU law from 2026 until 2035, and to ensure that aviation as a

whole contributes its fair share to addressing climate change in line the objectives of

the Paris Agreement. Emissions from international aviation outside Europe were to be

capped from January 2021 by global market-based action, and the European

Parliament and Council set out conditions for considering whether that scheme is

sufficient action to tackle climate change or should be supplemented. In 2032, when

the results of the functioning of CORSIA in terms of offsetting will be apparent, a

review should be undertaken to assess the implementation of CORSIA by the major

countries in the aviation sector for whom this is mandatory according to the CORSIA

rules laid down by ICAO. In the event that CORSIA is proving to be ambitious,

efficient and successful, the scope of effective carbon pricing under the EU ETS

should be reduced to flights within the EEA and departing to the UK, Switzerland, to

and from Gibraltar and other countries taking advantage of ETS as a service.

(84) In order to limit additional stringency linked to the geographic extension of the scope

of the EU ETS in respect of aviation activities and taking into account the fact that

emissions stemming from aviation activities have been on an increasing trajectory it is

appropriate to increase the total number of allowances available in respect of aviation

activities in proportion to the emissions newly included in the scope, taking into

account the latest available information on emissions, and to reserve from those

allowances for additional support for reducing aviation’s climate impacts through

sustainable aviation fuels, electrification and cost-effective reductions from contrails.

The total number of allowances available in respect of aviation activities should

nevertheless be reduced by an amount equalling the emissions deducted by aircraft

operators from the surrender obligation to account for costs incurred by offsetting

under CORSIA, because these emissions are no longer covered by the EU ETS.

EN 55 EN

(85) Lowering the threshold applicable to the exclusion of aircraft operators as laid down in

Annex I to Directive 2003/87/EC leads to the additional inclusion of a number of

smaller aircraft operators. To take into account the limited administrative capacity of

such small aircraft operators, it is appropriate to increase the threshold for enabling the

use of simplified reporting tools. The reporting tool provided by Eurocontrol has

reached a high level of accuracy during the several years of application and continuous

improvement since its introduction, accordingly it is capable of providing emission

values for all aircraft operators concerned.

(86) The scope and definition of the activity “Production of hydrogen (H2) and synthesis

gas with a production capacity exceeding 5 tonnes per day” under Annex I to Directive

2003/87/EC should be amended to solve recurring implementation questions and

clarify the activity of production of hydrogen, also when solely produced as by-

product, is covered whenever the threshold of a production capacity above 5 tonnes

per day is exceeded.

(87) Emissions from flights operated by aircraft operators operating business aircraft have

largely been exempted from the EU ETS because they generally operate fewer flights

or emit less than the exclusion thresholds laid down in Annex I to Directive

2003/87/EC. Aircraft operators having yearly emissions on international flights less

than 10.000t CO2 are not subject to ICAO’s CORSIA scheme and should therefore

contribute through the EU ETS. In order to ensure that all aircraft operators contribute

to climate action, it is therefore appropriate that the number of flights be no longer a

criterion for the exemption from the EU ETS and the emissions threshold is reduced

and simplified by having one single threshold for all types of aircraft operators.

Nevertheless, in order to ensure that the additional administrative burden on competent

authorities remain reasonable, it is appropriate to exempt aircraft operators with a very

small level of emissions subject to the EU ETS surrender obligation, also taking into

account the limited cumulative environmental benefit that their inclusion would lead

to.

(88) The analysis carried out in the context of the Commission’s review of the reserve

show that a more gradual release of allowances from the reserve into the market in

case of a shrinking market will mitigate the risk of creating price spikes in the market

when the number of allowances in circulation is close to the lower threshold. A lower

buffer parameter should be introduced from 2028 for a proportionate release of

allowances when the total amount of allowances in circulation is between 400 hundred

million allowances and 300 hundred million allowances.

(89) In order to take account of a shrinking emission trajectory and ensure that the reserve

remains resilient to external shocks over time, the reference parameters of the market

stability reserve should be updated for intakes and releases from the reserve to be

proportionate to market developments. To that end, the upper threshold, lower

threshold and corresponding buffers and the release quantity should be adjusted

annually and reduced with 4 % to remain aligned with the evolution of the shrinking

market.

(90) The analysis carried out in the context of the Commission’s review of the reserve and

the expected developments relevant to the carbon market indicate that the intake rate

of 24 % has served its purpose and in view of the recent and future evolution of the

market, this intake rate should return to 12%. To that end, the upper buffer threshold

should be adjusted correspondingly.

EN 56 EN

(91) The calculation of the total number of allowances in circulation only considers data

related to stationary installations until 31 December 2023. To take account of historic

demand for allowances by aviation in the period between 1 January 2012 and 31

December 2023, the annual calculation of the total amount of allowances should be

adjusted to reflect the cumulative demand from the aviation sector over this period.

(92) Since the objectives of this Directive, namely to promote reductions of greenhouse gas

emissions in a cost-effective and economically efficient way in a manner

commensurate with the economy-wide net greenhouse gas emission reduction target

for 2040 through an extended and amended Union wide market-based mechanism,

cannot be sufficiently achieved by the Member States but can rather, by reason of its

scale and effects, be better achieved at Union level, the Union may adopt measures, in

accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on

European Union. In accordance with the principle of proportionality as set out in that

Article, this Directive does not go beyond what is necessary in order to achieve those

objectives.

(93) In order to ensure uniform conditions for the implementation of Articles 4 to 7 of

Directive 2003/87/EC concerning the granting, suspension and withdrawing of

greenhouse gas emissions permits by competent authorities, Article 10a(3b) to (3d) of

Directive 2003/87/EC on the decarbonisation investment in the EU conditionality rules

for free allocation concerning the format and content of the Invest in EU

decarbonisation plans,implementing powers should be conferred on the Commission.

In addition, to ensure uniform conditions for the implementation of the reservation and

allocation mechanism pursuant to Article 3gaa of Directive 2003/87/EC as regards the

non-Union ports and third countries in respect of which a derogation from the origin

requirements should apply, implementing powers should be conferred on the

Commission. The implementing powers conferred on the Commission pursuant to

Article 14 of Directive 2003/87/EC should be extended to establish the order of

capture accounting of emissions from captured CO2 from a mix of zero-rated and non-

zero-rated sources, and to the accounting of emissions from synthetic fuels, to ensure

that emissions are accounted for and that double counting is avoided. In addition, the

implementing powers conferred on the Commission pursuant to Article 3ga(2) should

be extended in order to take into account the changes to the measure that aims to

further limit the risk of evasive port calls and relocation of container transhipment

activities. Those implementing powers be exercised in accordance with Regulation

(EU) No 182/2011.

(94) In order to adopt non-legislative acts of general application to supplement or amend

certain non-essential elements of a legislative act, the power to adopt acts in

accordance with Article 290 TFEU should be delegated to the Commission in respect

of supplementing the decarbonisation investment in the EU conditionality rules for

free allocation in Article 10a(3b) to (3d) of Directive 2003/87/EC, with regards to the

detailed conditions to form a pool rules on pooling under Article 10a(3d) and the

repartition of liability between operators in that case, the detailed conditions for the

derogations set out in the fifth and sixth subparagraphs of Article 10a(3c), the detailed

timeline for the submission of the Invest in EU decarbonisation plans, the qualification

as decarbonisation investments, the qualification as significant emissions reduction,

and the determination of the economic value of the quantity of free allowances. In

addition, the power to adopt acts in accordance with Article 290 TFEU should be

delegated to the Commission in respect of supplementing Article 9c of Directive

2003/87/EC on the modalities for the purchase of carbon removals and auctioning of

EN 57 EN

the corresponding allowances, and to supplement Articles 10cb, 10cc, 10cd and 10ce

of Directive 2003/87/EC on the operation of the Innovation Fund and the Industrial

Decarbonisation Bank. Moreover, the power to adopt acts in accordance with Article

290 TFEU should be delegated to the Commission in respect of supplementing Article

19 of Directive 2003/87/EC with regards to the conditions, modalities and procedures

under which the Central Administrator makes use of revenues from the auctioning of

allowances to cover expenses linked with the functioning and management of the EU

ETS. The power to adopt such acts should also be delegated on the Commission to

supplement Article 12(3b) concerning the requirements for considering that

greenhouse gases have become permanently chemically bound or chemically bound

and determine measures to address the risk of loopholes. The power to adopt acts in

accordance with Article 290 TFEU should be delegated to the Commission to

supplement Article 3gaa of Directive 2003/87/EC in respect of the detailed rules

necessary for the application of the reservation and allocation of allowances for the use

of sustainable maritime fuels and zero-emission propulsion technologies, as well as

Article 3gab. In addition, the power to adopt the power to adopt acts in accordance

with Article 290 of the Treaty on the Functioning of the European Union should be

delegated to the Commission to supplement Article 25b of Directive 2003/87/EC in

respect of the rules on the operation of ETS as a service and to amend Article 3ga(1)

of that Directive in respect of the coverage of the remaining emissions released during

a voyage between a port of call under the jurisdiction of a Member State and a port of

call under the jurisdiction of a third country to which ETS as a service is provided. It is

of particular importance that the Commission carry out appropriate consultations

during its preparatory work, including at expert level, and that those consultations be

conducted in accordance with the principles laid down in the Interinstitutional

Agreement of 13 April 2016 on Better Law-Making32. In particular, to ensure equal

participation in the preparation of delegated acts, the European Parliament and the

Council receive all documents at the same time as Member States’ experts, and their

experts systematically have access to meetings of Commission expert groups dealing

with the preparation of delegated acts.

(95) The provisions relating to the amendment to Article 3(h) and the introduction of

Article 6(4) and Article 10a(3f) of Directive 2003/87/EC should apply from 1 January

2028 to clarify the rules on permitting and the corrections in case of excess free

allocation as early as feasible. Consequently, Member States should transpose the

provisions relating to those articles by 31 December 2027. The deadline for

transposing the remaining provisions of this Directive should be 31 December 2028, to

provide sufficient time for orderly implementation. In accordance with the Joint

Political Declaration of 28 September 2011 of Member States and the Commission on

explanatory documents33, Member States have undertaken to accompany, in justified

cases, the notification of their transposition measures with one or more documents

explaining the relationship between the components of a directive and the

corresponding parts of national transposition instruments. With regard to this

Directive, the legislator considers the transmission of such documents to be justified.

(96) To ensure clarity already in the ongoing period, Members States should transpose the

provisions clarifying existing rules in line with their implementation and the practice

by 1 January 2028. This concerns the provisions clarifying and aligning rules with the

32 OJ L 123, 12.5.2016, p. 1, ELI: http://data.europa.eu/eli/agree_interinstit/2016/512/oj. 33 Joint Political Declaration of 28 September 2011 of Member States and the Commission on explanatory

documents (2011/C 369/02).

EN 58 EN

practice as regards the definition of a new entrant in Article 3, point (h), Article 6(4)

clarifying the treatment of installations to which a greenhouse emissions permit is

successively granted for the first time, withdrawn and a new permit is granted during

the same five-year period for free allocation and after the submission of the list

referred to in Article 11(1) for that period, and Article 10a(4d) of Directive

2003/87/EC as regards returning excess allowances.

(97) To ensure timely availability of the corresponding funds, the provisions amending

Articles 10a(5b), 10a(7) and inserting a new Article 19(1a) should start applying on 30

September 2027. Those provisions concern, respectively, the use of any remaining

quantity of allowances from the additional amount of up to 3 % of the total quantity of

allowances referred to in Article 10a(5a), the allowances that should be set aside for

new entrants and the provision enabling the Commission to use allowances from the

Union-wide quantity of allowances to cover expenses linked with the functioning and

management of the EU ETS. To ensure timely adjustment, the provision amending

Article 10a(1a) of Directive 2003/87/EC concerning the CBAM factor should also

apply from 30 September 2027 onwards.

(98) Directive 2003/87/EC and Decision (EU) 2015/1814 of the European Parliament and

of the Council34 should therefore be amended accordingly,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

Amendments to Directive 2003/87/EC

Directive 2003/87/EC is amended as follows:

(1) in Article 2, the first subparagraph is replaced by the following:

‘1. This Directive shall apply to the activities listed in Annexes I and III, and to the

greenhouse gases listed in Annex II. Where an installation that is included within the

scope of the EU ETS due to the operation of combustion units with a total rated

thermal input exceeding 20 MW changes its production processes to reduce its

greenhouse gas emissions and no longer meets that threshold, the Member State in

which that installation is situated shall provide the operator with the options of

remaining within the scope of the EU ETS until the end of the current and the two

following five-year periods referred to in Article 11(1), second subparagraph,

following the change to its production processes. The operator of that installation

may decide that the installation is to remain within the scope of the EU ETS until the

end of the current five-year period only, the end of the next five-year period only

following the change to its production processes, or the end of the following two

five-year periods following the change to its production processes. The Member

State concerned shall notify the Commission of changes compared to the list

submitted to the Commission pursuant to Article 11(1).’;

(2) Article 3 is amended as follows:

(a) point (e) is replaced by the following:

34 Decision (EU) 2015/1814 of the European Parliament and of the Council of 6 October 2015 concerning

the establishment and operation of a market stability reserve for the Union greenhouse gas emission

trading scheme and amending Directive 2003/87/EC (OJ L 264, 9.10.2015, p. 1, ELI:

http://data.europa.eu/eli/dec/2015/1814/oj).

EN 59 EN

‘(e) ‘installation’ means either of the following:

(i) a stationary technical unit where one or more activities listed in Annex I are

carried out and any other directly associated activities which have a technical

connection with the activities carried out and which could have an effect on

emissions and pollution;

(ii) a CO2 transport infrastructure as defined in Article 3(29) of Regulation

(EU) 2024/1735 of the European Parliament and of the Council* that carries

out the activity of transport of carbon dioxide listed in Annex I;

___________

* Regulation (EU) 2024/1735 of the European Parliament and of the Council of

13 June 2024 on establishing a framework of measures for strengthening

Europe’s net-zero technology manufacturing ecosystem and amending

Regulation (EU) 2018/1724 (OJ L, 2024/1735, 28.6.2024, ELI:

http://data.europa.eu/eli/reg/2024/1735/oj).’

(b) point (h) is replaced by the following:

‘(h) ‘new entrant’ means any installation carrying out one or more of the

activities listed in Annex I or an activity included in the EU ETS in accordance

with Article 24, which has obtained a greenhouse gas emissions permit for the

first time within the period starting from three months before the date for

submission of the list under Article 11(1), and ending on 31 December of the

last year in the corresponding five-year period for free allocation referred to in

Article 11(1);’;

(c) point (o) is replaced by the following:

‘(o) ‘aircraft operator’ means the person who operates an aircraft at the time it

performs an aviation activity listed in Annex I or, where that person cannot be

identified, the entity charged for air navigation service charges pursuant to

Article 32 of Regulation (EU) 2024/2803 of the European Parliament and the

Council*, or ultimately the owner of the aircraft;

___________

* Regulation (EU) 2024/2803 of the European Parliament and of the Council of

23 October 2024 on the implementation of the Single European Sky (OJ L,

2024/2803, 11.11.2024, ELI: http://data.europa.eu/eli/reg/2024/2803/oj).’;

(d) point (p) is deleted;

(e) point (z) is replaced by the following:

‘(z) ‘port of call’ means either of the following:

(i) for ships transporting for commercial purposes cargo or passengers, the port

where a ship stops to load or unload cargo or to embark or disembark

passengers; stops for the sole purposes of refuelling, obtaining supplies,

relieving the crew of a ship, going into dry-dock or making repairs to the ship,

its equipment, or both, stops in port because the ship is in need of assistance or

in distress, ship-to-ship transfers carried out outside ports, stops for the sole

purpose of taking shelter from adverse weather or rendered necessary by search

and rescue activities, and stops of containerships in a neighbouring container

EN 60 EN

transhipment port listed in the implementing act adopted pursuant to

Article 3ga(2) are excluded;

(ii) for ships performing or supporting offshore operations in connection with

an offshore worksite, the port where a ship stops to load or unload cargo or to

embark or disembark passengers, or the offshore worksite where a ship

performs or supports offshore operations; stops for the sole purposes of

refuelling, obtaining supplies, relieving the crew of a ship, going into dry-dock

or making repairs to the ship, its equipment, or both, stops in port because the

ship is in need of assistance or in distress, ship-to-ship transfers carried out

outside ports, stops for the sole purpose of taking shelter from adverse weather

or rendered necessary by search and rescue activities, and stops of

containerships in a neighbouring container transhipment port listed in the

implementing act adopted pursuant to Article 3ga(2) are excluded;’

(f) in point (ag), the words ‘for the purposes of Chapter IVa of this Directive’ are

deleted;

(g) the following points are added:

‘(aj) ‘hazardous waste’ means hazardous waste as defined in Article 3, point

(2) of Directive 2008/98/EC of the European Parliament and of the Council (*)

(ak) ‘municipal waste’ means municipal waste as defined in Article 3, point

(2b) of Directive 2008/98/EC;

(al) ‘synthetic fuels’ means renewable fuels of non-biological origin as defined

in Article 2, point (36) of Directive (EU) 2018/2001 and low-carbon fuels as

defined in Article 2, point (13), of Directive (EU) 2024/1788 of the European

Parliament and of the Council*;

(am) ‘offshore operations’ means activities in connection with the exploration,

appraisal or exploitation of natural resources of the seabed and subsoil, or

activities in connection with offshore installations or offshore infrastructure,

but excluding the activities of maritime transport of oil and gas;

(an) ‘offshore worksite’ means the geographical area covered by an

authorisation delivered by the competent authority for conducting offshore

operations;

(ao) ‘business flight’ means a flight that is performed with a business aircraft

included on the list adopted by the Commission pursuant to Article 3c(6).’.

___________

* Directive 2008/98/EC of the European Parliament and of the Council of 19

November 2008 on waste and repealing certain Directives (OJ L 312,

22.11.2008, ELI: http://data.europa.eu/eli/dir/2008/98/oj)

* Directive (EU) 2024/1788 of the European Parliament and of the Council of

13 June 2024 on common rules for the internal markets for renewable gas,

natural gas and hydrogen, amending Directive (EU) 2023/1791 and repealing

Directive 2009/73/EC (recast) (OJ L, 2024/1788, 15.7.2024, ELI:

http://data.europa.eu/eli/dir/2024/1788/oj).’;

(3) Article 3c is amended as follows:

(a) paragraph 6 is replaced by the following:

EN 61 EN

‘6. For the period from 1 January 2024 until 31 December 2030, a maximum of

20 million of the total quantity of allowances referred to in paragraph 5 shall be

reserved in respect of aircraft operators, on a transparent, equal-treatment and

non-discriminatory basis, for the use of sustainable aviation fuels, and other

aviation fuels that are not derived from fossil fuels, referred to in Article 4(1),

second subparagraph, of Regulation (EU) 2023/2405 of the European

Parliament and the Council* and for the use of electricity, for subsonic flights

for which allowances have to be surrendered in accordance with Article 12(3)

of this Directive and for which the fulfilment of that obligation is not

considered to be satisfied pursuant to Article 28a(1) of this Directive. For

business flights, the reserved amount shall be available only for the use of

electricity. Where eligible aviation fuel cannot be physically attributed to a

specific flight, the allowances reserved under this subparagraph shall be

available for eligible aviation fuels uplifted in the EEA proportionate to the

emissions from flights, except business flights, of the aircraft operator for

which allowances have to be surrendered in accordance with Article 12(3) of

this Directive and the fulfilment of that obligation is not considered to be

satisfied pursuant to Article 28a(1) of this Directive. The same principle shall

apply to defining the volume of fuels to which zero emission factor applies.

The allowances reserved under the first subparagraph of this paragraph shall be

allocated by the Member States to cover part of or all of the price differential

between the use of fossil kerosene and the use of the relevant eligible aviation

fuels, taking into account incentives from the price of carbon and from

harmonised minimum levels of taxation on fossil fuels. When calculating that

price differential, the Commission shall take into account the technical report

published by the European Union Aviation Safety Agency pursuant to Article

13(1) of Regulation (EU) 2023/2405. Member States shall ensure the visibility

of funding under this paragraph in a manner corresponding to the requirements

in Article 30m(1), points (a) and (b), of this Directive.

The allowances allocated under this paragraph shall cover:

(a) 50 % of the remaining price differential between the use of fossil

kerosene and advanced biofuels as defined in Article 2, second

paragraph, point (34), of Directive (EU) 2018/2001 of the European

Parliament and of the Council **, for which the emission factor is zero

under Annex IV to this Directive or under the implementing act adopted

pursuant to Article 14 of this Directive;

(b) 60 % of the remaining price differential between the use of fossil

kerosene and hydrogen from renewable energy sources, and drop-in

renewable fuels of non-biological origin compliant with Article 25 of

Directive (EU) 2018/2001, used in aviation, for which the emission

factor is zero under Annex IV to this Directive or under the

implementing act adopted pursuant to Article 14 of this Directive;

(c) 100 % of the remaining price differential between the use of fossil

kerosene and any eligible aviation fuel that is not derived from fossil

fuels covered by the first subparagraph of this paragraph, at airports

situated on islands smaller than 10 000 km2 and with no road or rail link

with the mainland and at airports located in an outermost region, where

EN 62 EN

the physical delivery of the eligible aviation fuel, outside of a mass

balance system, took place;

(d) until 31 December 2029, in cases other than those referred to in points

(a), (b) and (c), 30 % of the remaining price differential between the use

of fossil kerosene and any eligible aviation fuel that is not derived from

fossil fuels covered by the first subparagraph of this paragraph.

(e) from 1 January 2027, the same number of allowances per megajoule

(MJ) of electricity consumed as aircraft operators are entitled to receive

pursuant to point (b) for the use of drop-in renewable fuels of non-

biological origin, in case of electric or hybrid aircraft performing flights

for which allowances have to be surrendered in accordance with Article

12(3).

Fuels shall be eligible for support referred to in this paragraph only if they are

produced in the EEA, in a third country that has an emissions trading system

linked with the EU ETS, or in a third country to which the Union provides

support pursuant to Article 25b. Fuels referred to in the third subparagraph,

points (a), (b) and (d), shall be eligible for a 10 percentage point increase in

coverage if they are produced using feedstock that is sourced in the Union, in a

third country that has an emissions trading system linked with the EU ETS, or

in a third country to which the Union provides support pursuant to Article 25b.

The allocation of allowances under this paragraph may take into account

possible support from other schemes at national, Union, or international level.

On a yearly basis, aircraft operators may apply for an allocation of allowances

based on the quantity of each eligible aviation fuel referred to in this paragraph

used on subsonic flights, with the exception of business flights, for which

allowances have to be surrendered in accordance with Article 12(3) between 1

January 2024 and 31 December 2040, excluding flights for which that

requirement is considered to be satisfied pursuant to Article 28a(1). On a

yearly basis, aircraft operators may apply for an allocation of allowances in

case of electric or hybrid aircraft using electricity or hydrogen for performing

any flight for which allowances have to be surrendered in accordance with

Article 12(3) until 31 December 2035.

If an aircraft operator demonstrates to the satisfaction of the Commission a

binding long-term fuel supply contract for the fuels referred to in the third

subparagraph, points (a), (b) and (e), which binds both the fuel supplier and the

aircraft operator, and is valid for at least three years, the allowances covering

the price difference for each year of the duration of the contract, for a

maximum of five years, shall be reserved for that aircraft operator. The yearly

allocation of the allowances for the use of the eligible fuels delivered under

those contracts shall be done the same way as set out in the second to fourth

subparagraphs. Allowances reserved under this point cannot exceed 10 million.

If, for a given year, the demand for allowances pursuant to this paragraph is

higher than the availability of allowances, the quantity of allowances shall be

reduced in a uniform manner for all aircraft operators concerned by the

allocation for that year.

Significant reductions in climate impacts from contrails in the order of millions

of tonnes of CO2e may be incentivised through the yearly use of no more than

EN 63 EN

420 000 allowances. From the amount reserved pursuant to the first

subparagraph, a total of up to 3 million allowances, available until 31

December 2033, shall be dedicated to the cost-effective reduction of climate

impacts from contrails. Member States shall allocate allowances equal to 0,1

percent of the verified emissions of an aircraft operator, upon its request, which

has embedded contrails forecasting models in its flight planning tools. In order

to be eligible for this allocation aircraft operators shall make available the

contrail forecasts to their operations control centre or equivalent, which shall

be instructed to assess their operational viability and, if possible, to incorporate

them when filing the corresponding flights. An additional amount equal to 0,02

percent of the verified emissions shall be allocated to aircraft operators,

referred to in the first sentence of this subparagraph, for flights for which the

aircraft operator uses flight trajectories and fuel flow as in-flight measured data

for the given year to report non-CO₂ aviation effects pursuant to Article 14(5).

The contrail forecasting models of aircraft operators referred to in the first

sentence of this subparagraph shall use, as a basis, the same common reference

numerical weather prediction model and weather data as the one used in the

monitoring, reporting and verification tools provided by the Commission

referred to in Article 14(5).

The Commission shall publish in the Official Journal of the European Union

details of the average cost difference between fossil kerosene, taking into

account incentives from the price of carbon and from harmonised minimum

levels of taxation on fossil fuels, and the relevant eligible aviation fuels, on a

yearly basis for the previous year.

The Commission is empowered to adopt delegated acts in accordance with

Article 23 to supplement this Directive by establishing the detailed rules for the

yearly calculation of the cost difference referred to in the sixth subparagraph of

this paragraph, for the allocation of allowances for the use of the fuels

identified in the first subparagraph of this paragraph as reported under the

implementing act adopted pursuant to Article 14(1), and establishing the

arrangements for taking into account incentives from the price of carbon and

from harmonised minimum levels of taxation on fossil fuels. Those delegated

acts may also lay down further rules and procedures for validation of contrail

forecasting models and their inclusion in flight planning tools.

The Commission shall adopt implementing acts listing business aircraft(s), the

flights performed by which aircraft are considered business flights. Those

implementing acts shall be adopted in accordance with the examination

procedure referred to in Article 22a(2).

By 1 July 2032, the Commission shall carry out an assessment regarding the

application of this paragraph and submit the results in a report to the European

Parliament and to the Council. The report may, where appropriate, be

accompanied by a legislative proposal to revise the amount reserved under this

paragraph until 31 December 2040, taking into account changes to the

geographic extent of flights subject to the surrender obligation laid down in

Article 12(3), to continue incentivise the use of the fuels identified in the first

subparagraph of this paragraph, in particular the use of renewable fuels of non-

biological origin compliant with Article 25 of Directive (EU) 2018/2001, used

in aviation, for which the emission factor is zero under Annex IV or under the

implementing act adopted pursuant to Article 14 of this Directive.

EN 64 EN

From 1 January 2028, the Commission shall evaluate the application of this

paragraph in the annual report it is required to submit pursuant to Article 10(5).

___________

* Regulation (EU) 2023/2405 of the European Parliament and of the Council of

18 October 2023 on ensuring a level playing field for sustainable air transport

(ReFuelEU Aviation) (OJ L, 2023/2405, 31.10.2023, ELI:

http://data.europa.eu/eli/reg/2023/2405/oj).

** Directive (EU) 2018/2001 of the European Parliament and of the Council of

11 December 2018 on the promotion of the use of energy from renewable

sources (OJ L 328, 21.12.2018, p. 82, ELI:

http://data.europa.eu/eli/dir/2018/2001/oj).’;

(b) paragraph 8 is replaced by the following:

‘8. By way of derogation from Article 12(3), Article 14(3) and Article 16,

Member States shall consider the requirements set out in those provisions to be

satisfied and shall take no action against aircraft operators in respect of

emissions released until 31 December 2035 from flights between an aerodrome

located in an outermost region of a Member State and an aerodrome located in

the same Member State, including another aerodrome located in the same

outermost region or in another outermost region of the same Member State.’;

(4) Article 3ga is amended as follows:

(a) paragraph 1 is replaced by the following:

‘1. In respect of ships transporting for commercial purposes cargo or

passengers, the allocation of allowances and the application of surrender

requirements in respect of maritime transport activities shall apply in respect of

fifty percent (50 %) of the emissions from ships performing voyages departing

from a port of call under the jurisdiction of a Member State and arriving at a

port of call outside the jurisdiction of a Member State, fifty percent (50 %) of

the emissions from ships performing voyages departing from a port of call

outside the jurisdiction of a Member State and arriving at a port of call under

the jurisdiction of a Member State, one hundred percent (100 %) of emissions

from ships performing voyages departing from a port of call under the

jurisdiction of a Member State and arriving at a port of call under the

jurisdiction of a Member State, and one hundred percent (100 %) of emissions

from ships within a port of call under the jurisdiction of a Member State.

In respect of ships performing or supporting offshore operations in connection

with an offshore worksite, the allocation of allowances and the application of

surrender requirements shall apply in respect of the following:

(i) half of the emissions from that ship released during voyages between

a port of call under the jurisdiction of a Member State and a port of call

outside the jurisdiction of a Member State for the purpose of performing

or supporting offshore operations in connection with an offshore worksite

situated in the territorial sea, the EEZ, the continental shelf or the

continental shelf sea of a Member State;

(ii) all emissions from that ship released during voyages for the purpose

of performing or supporting offshore operations in connection with an

offshore worksite situated in the territorial sea, the EEZ, the continental

EN 65 EN

shelf or the continental shelf sea of a Member State that depart from a

port of call under the jurisdiction of a Member State and arrive at a port

of call under the jurisdiction of a Member State;

(iii) all emissions from that ship within a port of call under the

jurisdiction of a Member State, if these emissions are closely related to

performing or supporting offshore operations in connection with an

offshore worksite situated in the territorial sea, the EEZ, the continental

shelf or the continental shelf sea of a Member State.

However, the allocation of allowances and the application of surrender

requirements shall not apply in respect of emissions released during voyages

for the purpose of performing or supporting offshore operations in connection

with an offshore worksite situated outside the territorial sea, the EEZ, the

continental shelf or the continental shelf sea of a Member State, and in respect

of emissions released within a port of call under the jurisdiction of a Member

State, if these emissions are closely related to performing or supporting

offshore operations in connection with an offshore worksite situated outside the

territorial sea, the EEZ, the continental shelf or the continental shelf sea of a

Member State.’;

(b) paragraph 2 is replaced by the following:

‘2. The Commission shall by means of implementing acts establish a list of

neighbouring container transhipment ports and update that list, where

necessary, by 31 December every year.

Those implementing acts shall list a port as a neighbouring container

transhipment port either where that port is located outside the Union but less

than 150 nautical miles from a port under the jurisdiction of a Member State,

where the draught and berth length of that port exceed 11 meters and 250

meters, respectively, and where there are available ship-to-shore cranes

suitable for container transhipment operations, or where the share of

transhipment of containers, measured in twenty-foot equivalent units, exceeds

50 % of the total container traffic of that port during the most recent twelve-

month period for which relevant data are available and where that port is

located outside the Union but less than 300 nautical miles from a port under the

jurisdiction of a Member State. For the purposes of this paragraph, containers

shall be considered to be transhipped when they are unloaded from a ship to the

port for the sole purpose of being loaded onto another ship. The list established

by the Commission pursuant to the first subparagraph shall not include ports

located in a third country for which that third country effectively applies

measures equivalent to this Directive. This includes ports in third countries

with whom an ETS linking agreement is in place.

Those implementing acts shall be adopted in accordance with the examination

procedure referred to in Article 22a(2).’;

(c) paragraph 3 is amended as follows: 

(i) the date “31 December 2030” is replaced by “31 December 2038”.

(ii) the penultimate sentence is replaced by the following:

‘The revenue generated from the auctioning of that share of allowances shall

be used for the priority purposes referred to in the first subparagraph of Article

EN 66 EN

10(3), points (a) and (d), and for purpose (g) of the purposes referred to in the

second subparagraph of Article 10(3).’

(d) the following new paragraph is added:

‘4. In the period until 2040, the Commission shall use up to a maximum of 0.5

million allowances from the Union-wide quantity of allowances referred to in

Article 9 to cover the financing of the implementation of the system in relation

to maritime transport activities.

These allowances shall be auctioned in accordance with Article 10(4) of this

Directive, with proceeds constituting external assigned revenue under Article

21(5) of Regulation (EU, Euratom) 2024/2509.’;

(5) the following Article 3gaa is inserted:

‘Article 3gaa

Reservation and allocation of allowances for the use of sustainable maritime fuels and

zero-emission propulsion technologies

1. Notwithstanding Article 10(1), for the period from 1 January [2028/first year after the

entry into force of this Directive] to 31 December 2040, a maximum of 110 million of the

Union-wide quantity of allowances referred to in Article 9 shall be reserved for the use of

sustainable maritime fuels or the deployment and operation of zero-emission propulsion

technologies, including electric and wind-assisted propulsion systems, provided that those

fuels and technologies are used in accordance with the rules laid down in this Article.

2. For the purposes of this Article, ‘sustainable maritime fuels’ means:

(a) biogas and advanced biofuels as defined in Article 2, second paragraph, points

(28) and (34), respectively, of Directive (EU) 2018/2001, for which the

emission factor is zero under Annex IV of this Directive or under the

implementing act adopted pursuant to Article 14 of this Directive;

(b) renewable fuels of non-biological origin compliant with Article 25 of Directive

(EU) 2018/2001, for which the emission factor is zero under Annex IV or

under the implementing act adopted pursuant to Article 14 of this Directive;

(c) low-carbon hydrogen and low-carbon fuels as defined respectively in Article 2,

point (11) and (13) of Directive (EU) 2024/1788 for which the emission factor

is zero under Annex IV or under the implementing act adopted pursuant to

Article 14 of this Directive..

3. The allowances referred to in paragraph 1 of this Article shall be reserved, on a

transparent, equal-treatment and non-discriminatory basis, in respect of shipping companies

for the use of sustainable maritime fuels and zero-emission propulsion technologies on

voyages for which allowances have to be surrendered in accordance with Article 12(3).

Allowances may support the use of sustainable maritime fuels or zero-emission propulsion

technologies by vessels below 5 000 gross tonnage but not below 400 gross tonnage on

voyages from their last port of call to a port of call under the jurisdiction of a Member State

and from a port of call under the jurisdiction of a Member State to their next port of call, as

well as within ports of call under the jurisdiction of a Member State.

4. Member States shall allocate the allowances reserved under paragraph 1 of this Article

to cover all or part of:

EN 67 EN

(a) the remaining price differential between the use of sustainable maritime fuels and

the use of maritime fossil fuels;

(b) the cost incurred in deploying and operating zero-emission propulsion

technologies compared to conventional propulsion systems, in proportion to the

amount of emission reductions achieved through the use of these zero-emission

propulsion technologies.

5. The Commission shall determine the price differential between the use of maritime

fossil fuels and sustainable maritime fuels on the basis of objective and verifiable information,

including, where available, actual transaction prices. Where no representative market price

exists for sustainable maritime fuels, the Commission shall establish reference prices on the

basis of objective and verifiable elements. For maritime fossil fuels, the Commission shall

estimate a weighted average price reflecting the actual mix of maritime fossil fuels reported

under Regulation (EU) 2015/757.

The cost incurred in deploying and operating zero-emission propulsion technologies

compared to conventional propulsion systems shall be calculated by shipping companies on

the basis of average emissions reduction costs to be determined by the Commission, taking

into account objective and verifiable information.

6. When allocating allowances in accordance with this Article, Member States shall

ensure that the following origin requirements are fulfilled:

(a) the batches of sustainable maritime fuels shall be produced in the Union, or

in a third country that has an emissions trading system linked with the

emissions trading system established in accordance with this Directive, or in a

third country to which the Union provides support pursuant to Article 25b for

the effective application of greenhouse gas emission pricing with an absolute

emissions cap;

(b) the zero-emission propulsion technologies shall be manufactured in the

Union, or in a third country that has an emissions trading system linked with

the emissions trading system established in accordance with this Directive, or

in a third country to which the Union provides support pursuant to Article 25b

for the effective application of greenhouse gas emission pricing with an

absolute emissions cap.

7. By way of derogation from paragraph 6, Member States shall not apply origin

requirements in respect of sustainable maritime fuels used on eligible voyages between a port

of call under the jurisdiction of a Member State and a port outside the jurisdiction of a

Member State that is identified in the implementing act adopted pursuant to paragraph 8, first

subparagraph.

8. The Commission is empowered to adopt implementing acts listing ports outside the

jurisdiction of a Member State that align with the guiding principles for support to port

projects in third countries identified in the EU Ports strategy* and that participate in green

shipping corridors with other ports under the jurisdiction of a Member State. The Commission

is also empowered to adopt implementing acts to update that list, as appropriate. Such

implementing acts shall be adopted in accordance with the examination procedure referred to

in Article 22a(2).

9. The allowances allocated in relation to the use of sustainable maritime fuels and zero-

emission propulsion technologies shall cover:

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(a) 55 % of the remaining price differential between the use of maritime fossil

fuels, on the one hand, and biogas and advanced biofuels as defined in Article

2 points (28) and (34), of Directive (EU) 2018/2001, for which the emission

factor is zero under Annex IV to this Directive or under the implementing act

adopted pursuant to Article 14 of this Directive;

(b) 90 % of the remaining price differential between the use of maritime fossil

fuels and renewable fuels of non-biological origin compliant with Article 25 of

Directive (EU) 2018/2001 for which the emission factor is zero under Annex

IV to this Directive or under the implementing act adopted pursuant to Article

14 of this Directive;

(c) 80 % of the remaining price differential between the use of maritime fossil

fuels and low-carbon hydrogen and low-carbon fuels as defined respectively in

Article 2, point (11) and (13) of Directive (EU) 2024/1788 for which the

emission factor is zero under Annex IV or under the implementing act adopted

pursuant to Article 14 of this Directive.;

(d) 90 % of the additional cost incurred in deploying and operating zero-emission

propulsion technologies compared to conventional propulsion systems.

Where sustainable maritime fuels or zero-emission propulsion technologies are used on a

voyage between a port under the jurisdiction of a Member State and a port under the

jurisdiction of a Member State located on an island, for which allowances have to be

surrendered in accordance with Article 12(3), the percentages laid down the first

subparagraph, points (a) to (d), shall be increased by 5 percentage points.

Where allowances are to be allocated in relation to sustainable maritime fuels produced using

feedstock that is sourced in the Union, or in a third country that has an emissions trading

system linked with the emissions trading system established in accordance with this Directive,

or in a third country to which the Union provides support pursuant to Article 25b for the

effective application of greenhouse gas emission pricing with an absolute emissions cap, the

percentages laid down in the first subparagraph, points (a) to (c), shall be increased by 10

percentage points.

Where allowances are to be allocated in relation to the deployment and operation of zero-

emission propulsion technologies that have been fitted on ships in Union shipyards, the

percentage laid down in the first subparagraph, point (d), shall be increased by 5 percentage

points.

Where sustainable maritime fuels are used or zero-emission propulsion technologies are

deployed or operated on a voyage between a port of call under the jurisdiction of a Member

State and a port of call outside the jurisdiction of a Member State, the amount of allowances

to be allocated in accordance with this Article shall be multiplied by 50 %, in accordance with

the geographical scope referred to in Article 3ga of this Directive.

10. On a yearly basis, shipping companies may apply for an allocation of allowances

based on the quantity of sustainable maritime fuels used and the emission reductions achieved

through zero-emission propulsion technologies during the preceding calendar year.

11. If, for a given year, the demand for allowances exceeds the quantity of allowances

available, the quantity of allowances shall be reduced in a uniform manner for all shipping

companies concerned by the allocation for that year.

12. The allocation of allowances under this Article may take into account possible support

from other schemes at national, Union, or international level.

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13. The Commission shall publish in the Official Journal of the European Union the

following information:

(a) the average price differential between maritime fossil fuels and sustainable

maritime fuels on a yearly basis for the previous year;

(b) average emissions reduction costs resulting from the deployment and operation

of zero-emission propulsion technologies every three years for the previous

three years.

14. The Commission is empowered to adopt delegated acts in accordance with Article 23

to supplement this Directive by establishing detailed rules concerning:

(a) the calculation of price differentials, including the establishment of reference

prices where representative market prices are not available;

(b) the determination of objective criteria applicable to eligible zero-emission

propulsion technologies when contributing to greenhouse gas emission

reductions;

(c) the determination of the emissions reductions coming from the deployment and

operation of zero-emission propulsion technologies;

(d) application, allocation, monitoring, reporting and verification procedures as

regards the allocation of allowances in accordance with this Article;

(e) safeguards to prevent overcompensation, including in relation to national,

Union, or international schemes;

(f) establishing safeguards and procedures to ensure a fair and proportionate

distribution of allowances among shipping companies, while taking into

account the need to preserve effective competition and access for small and

medium sized shipping companies.

15. Member States shall ensure the visibility of funding under this Article in a manner

corresponding to the requirements set out in Article 30m(1), points (a) and (b).

16. From 1 January 2032, the Commission shall evaluate the application of this Article in

the annual report it is required to submit pursuant to Article 10(5).

___________

* Communication from the Commission from the Commission to the European Parliament,

the Council, the European Economic and Social Committee and the Committee of the

Regions ‘EU Ports Strategy’ COM(2026) 112 final, Annex 1, ‘B)Guiding principles for

support to port projects in third countries.’;

(6) after Article 3gaa, the following Article 3gab is inserted:

‘Article 3gab

Reservation and allocation of allowances for the decarbonisation of the maritime sector in

certain least developed countries and small island developing States

An amount of 0.9 million of the Union-wide quantity of allowances referred to in Article 9

shall be reserved for the decarbonisation of the maritime sector in least developed countries

and small island developing States as defined by the United Nations, excluding those States

whose GDP per capita equals or exceeds the Union average. Such amount shall be reserved

on an annual basis until 2035.

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The Commission is empowered to adopt delegated acts in accordance with Article 23 to

supplement this Directive by laying down rules on the use of the reserved allowances referred

to in the first subparagraph of this paragraph and the procedure to make available those

allowances.’;

(7) Article 3gg is amended as follows:

(a) in paragraph 1, point (c) is replaced by the following:

‘(c) any issue related to the coherence between the EU ETS and that measure,

including double payment.’

(b) in paragraph 1, the second subparagraph is replaced by the following:

‘Where appropriate, the Commission may accompany the report referred to in

the second subparagraph of this paragraph with a legislative proposal to

amend this Directive in a manner that is consistent with the Union 2030

climate targets and the climate-neutrality objective set out in Regulation (EU)

2021/1119, and with the aim of preserving the environmental integrity and

effectiveness of Union climate action, in order to ensure coherence between

the implementation of the global market-based measure and the EU ETS,

while avoiding double payment and any significant double burden.’;

(c) paragraph 4 is replaced by the following:

'No later than 30 September 2035, the Commission shall assess the

implementation of Article 3ga(3), second subparagraph, including its

contribution to the decarbonisation of maritime transport and the

administrative costs incurred by the Member States concerned, and the

appropriateness of extending its application beyond 31 December 2038 and, if

appropriate, submit a legislative proposal to that effect’.

(d) in paragraph 5, the first subparagraph is replaced by the following:

 'No later than 31 December 2031 the Commission shall present a report to the

European Parliament and to the Council in which it shall examine the

feasibility and economic, environmental and social impacts of the inclusion in

this Directive of emissions from ships, below 5 000 gross tonnage but not

below 400 gross tonnage, which are referred to in Article 2(1d) points (e)

and (f) of Regulation (EU) 2015/757’;

(e) the following paragraph 6 and 7 are added:

‘6. By 1 January 2032, the Commission shall carry out an evaluation of the

application of Article 3gaa and submit a report to the European Parliament

and to the Council.’;

7. No later than 30 September 2033, the Commission shall assess the

implementation of the derogation provided for in Article 12(3-e), taking into

account technological developments, the availability and deployment of low-

and zero-emission propulsion technologies and sustainable fuels suitable for

ice-class ships, the impact of the derogation on the decarbonisation of

maritime transport, and the appropriateness of extending its application

beyond 31 December 2035 and, where appropriate, submit a legislative

proposal to that effect.’;

(8) in Article 4, ‘Article 27’ is replaced by ‘Articles 27 and 27a’.

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(9) in Article 6, the following paragraphs are added:

‘3. The Commission is empowered to adopt implementing acts establishing rules for

the granting, suspension and withdrawing of greenhouse gas emissions permit by the

competent authority. Such implementing acts shall be adopted in accordance with the

examination procedure referred to in Article 22a(2).

4. Where during the period referred to in Article 3, point (h), the competent authority

successively grants for the first time a greenhouse gas emissions permit, withdraw

that permit and then grant a new one, the installation shall only be reintroduced in the

EU ETS in the following five-year period for free allocation referred to in Article

11(1), under the relevant status as incumbent installation or new entrant, as

applicable. That installation shall remain outside the scope of the EU ETS for the

rest of the five-year period for free allocation referred to in Article 11(1) during

which the permit was successively granted for the first time and withdrawn.’;

(10) in the title of Chapter III the word ‘stationary’ is deleted;

(11) the following Article is inserted:

‘Article 6a

Competent authority in respect of CO2 transport infrastructure

1. The competent authority in respect of CO2 transport infrastructure shall be the

competent authority of the Member State where the CO2 that is being transported is captured.

Where CO2 is captured outside the EEA, the competent authority shall be the competent

authority of the first Member State of transit of the CO2.

2. The competent authorities pursuant to paragraph 1 and the competent authorities of

transit or reception Member States shall exchange all relevant information necessary for the

approval of monitoring plans and verification of emission reports of the CO2 transport

infrastructures.’

(12) Article 9 is amended as follows:

(a) the fourth subparagraph is replaced by the following:

‘From 1 January 2026 and 1 January 2027 respectively, the quantity of

allowances shall be increased to take into account the coverage of greenhouse

gas emissions other than CO2 emissions from maritime transport activities and

the coverage of emissions of offshore ships, based on their emissions for the

most recent year for which data are available. Notwithstanding Article 10(1),

the allowances resulting from that increase shall be made available to support

innovation in accordance with Article 3gaa from 2030.’

(b) in Article 9, the following paragraphs are added:

‘In [2031/two years after inclusion of additional small ships in MRV], the

Union-wide quantity of allowances shall be increased to take into account the

coverage of emissions of the categories of ships below 5 000 gross tonnage but

not below 400 gross tonnage referred to in Annex I, based on their emissions

for the most recent year for which data are available. The allowances resulting

from that increase shall contribute to the quantity referred to in Article 3gaa.

The Union-wide quantity of allowances shall be increased in respect of

municipal waste incineration by the following amounts, in consideration of the

phase-in requirements established in Article 12a:

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– 10.2 million allowances in 2031;

– 19.5 million allowances in 2032;

– 28.1 million allowances in 2033; and

– 36 million allowances in 2034, subject thereafter to the application of the

linear reduction factor.

The linear factor shall be 3.7% from 2031 to 2035 and 1.7% from 2036.

The Commission shall publish the Union-wide quantity of allowances by

September 2028.’;

(13) the following Articles are inserted:

‘Article 9b

Funding for international credits

1. Up to 260 million allowances from the Union-wide quantity of allowances referred to

in Article 9 shall be made available to the facility for the purchase of up to 260 Mt of high

quality and high integrity international credits, out of the international credits provided in

Regulation 2021/1119/EU, to contribute to the climate ambition of the activities listed in

Annex I from 2036 to 2040. All purchases shall be subject to the criteria of Regulation

2021/1119/EU being fulfilled.

2. Proceeds from the auctioning of allowances under paragraph 1 shall constitute external

assigned revenue in accordance with Article 21(5) of Regulation (EU, Euratom) 2018/1046 of

the European Parliament and of the Council. The Commission shall ensure that the auctioning

of allowances for the facility is in accordance with the principles and modalities referred to in

Article 10(4), in due time for the start of the purchases.

3. By 31 January 2033, the Commission shall present to the European Parliament and to

the Council a report assessing the development of a high-quality and high-integrity

international credits market, taking into account all the criteria set out in Regulation

2021/1119/EU, and their availability to contribute to the climate ambition of the activities

listed in Annex I, including the following:

(a) the environmental integrity, accounting robustness and verification

requirements that would need to be fulfilled for any such credits to contribute

to the ambition of these sectors, taking into account developments under the

Paris Agreement and EU legislation;

(b) the development of the market for international credits, in terms of supply and

demand;

(c) the potential implications of such use for the functioning and integrity of the

EU ETS;

(d) the specific implications for sectors covered by the EU ETS, including the risk

of carbon leakage, the impacts on competitiveness, the risk of mitigation

deterrence, and the consistency with the Union’s economy-wide climate

neutrality objective.

4. Subject to the report in paragraph 3, by way of derogation from Article 9, in the event

that high-quality and high-integrity, cost-effective international credits referred to in

paragraph 1, are not available, the linear factor shall revert to 2.7% from 2036.

EN 73 EN

5. Allowances set aside under paragraph 1 shall be allocated to the Industrial

Decarbonisation Bank for industrial decarbonisation projects in accordance with Article 10ce

in the event they are not allocated for the purposes established in paragraph 1.

Article 9c

Domestic permanent carbon removals

1. The Union-wide quantity of allowances referred to in Article 9 shall be increased by

250 million allowances. Those allowances shall be made available to the Commission to

auction them from 2031 to 2040 to generate revenues for the purchase of an equivalent

amount of domestic permanent carbon removal units generated by BioCCS and DACCS

activities under Regulation (EU) 2024/3012 of the European Parliament and of the Council*.

The Commission shall purchase those removals units prioritising a portfolio of cost-effective,

high-integrity projects with payment upon delivery of the certified units.

2. An additional 10 million allowances from the Union-wide quantity of allowances

referred to in Article 9 between 2031 and 2040 shall be made available to the Commission to

auction them to generate revenues for the purchase of those permanent carbon removals units,

in the event the revenues generated from the allowances under paragraph 1 would be

insufficient for the purchase of the total amount of domestic permanent carbon removals

units.

3. Proceeds from the auctioning of allowances under paragraphs 1 and 2 of this Article

shall constitute external assigned revenue in accordance with Article 21(5) of Regulation (EU,

Euratom) 2024/2509 of the European Parliament and of the Council**. The auctioning of

allowances for the purchase of domestic permanent carbon removal units referred to in

paragraph 1 of this Article shall be carried out in accordance with the principles and

modalities referred to in Article 10(4) of this Directive. The allowances set aside under

paragraphs 1 and 2 of this Article shall be returned to the Union-wide quantity of allowances

referred to in Article 9 of this Directive in the event they are not auctioned for the purposes in

paragraph 1 of this Article before 2041.

4. The Commission is empowered to adopt delegated acts in accordance with Article 23

to supplement this Directive concerning the detailed modalities for the purchase of the

domestic permanent carbon removal units indicated under paragraph 1, including the timing

of the auctioning of the allowances referred to in paragraphs 1 and 2; the forms of support,

selection procedure and criteria, eligibility criteria and technological requirements for the

different types of support and payment mechanisms, using competitive allocation where

feasible and reporting transparently on the outcome of the procedures; as well as the financial

rules to ensure an appropriate implementation of the purchase. Those delegated acts shall

ensure that any early auctioning of the allowances referred to in paragraphs 1 and 2 is

balanced out through the auctioning of the allowances under Article 10, to achieve the

equivalent effect of a gradual integration of carbon removals towards the auctioning of 48

million of the allowances referred to in paragraphs 1 and 2 in 2040. Those delegated acts shall

provide detailed modalities for the purchase of the domestic permanent carbon removals

prioritising a portfolio of cost-effective, high-integrity projects with payment upon delivery of

the certified units and aiming to limit fiscal exposure.

5. The quantity of domestic permanent carbon removals to be purchased shall be reduced

by the amount of BioCCS domestic carbon removals that operators, aircraft operators and

shipping companies use in accordance with Article 14(1a), and a corresponding amount of

allowances shall be cancelled from the 250 million allowances referred to in paragraph 1.

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6. Any permanent carbon removal certified units generated by BioCCS and DACCS

activities under Regulation (EU) 2024/3012 and purchased by the Commission in accordance

with this Article shall be cancelled and no longer be allowed to account as negative emissions

under Article 14(1a) of this Directive.

7. The linear reduction factor established in Article 9 shall not apply to the increase of

allowances established in paragraph 1.

8. Before 31 December 2034, the Commission shall present a report to the European

Parliament and to the Council in which it assesses the progress regarding the purchase of

domestic permanent carbon removal units provided for under paragraph 1, considering the

available supply, and the price of domestic permanent carbon removal units in comparison

with the assigned budget. The report shall also examine the possible contribution of nature

based removals and carbon farming sequestration units certified under Regulation (EU)

2024/3012 to permanent carbon removals, and assess the feasibility to gradually transition,

from an integration managed by the Commission, towards a direct integration by operators,

beyond own use, of domestic permanent carbon removal units in the EU ETS.

_________

* Regulation (EU) 2024/3012 of the European Parliament and of the Council of 27 November

2024 establishing a Union certification framework for permanent carbon removals, carbon

farming and carbon storage in products (OJ L, 2024/3012, 6.12.2024, ELI:

http://data.europa.eu/eli/reg/2024/3012/oj).

** Regulation (EU, Euratom) 2024/2509 of the European Parliament and of the Council of 23

September 2024 on the financial rules applicable to the general budget of the Union (OJ L,

2024/2509, 26.9.2024, ELI: http://data.europa.eu/eli/reg/2024/2509/oj).’;

(14) Article 10 is amended as follows:

(a) in paragraph 1, the first and second subparagraphs are replaced by the

following:

‘1. At least 57 % of the allowances available the Union-wide quantity of

allowances referred to in Article 9 of this Directive that are not allocated in

accordance with Articles 9, 3gaa, 3gab, 9c, 10cc and 19 of this Directive, shall

be auctioned by the Member States, without prejudice to a possible reduction

pursuant to Article 10a(5a) of this Directive, to the placing of allowances in the

market stability reserve (MSR) established by Decision (EU) 2015/1814* of

the European Parliament and of the Council or to the cancellation of

allowances in accordance with Article 12(4) of this Directive. The share of

allowances to be auctioned by the Member States shall increase as a result of

the application of the CBAM factor in accordance with Article 10a(1a) of this

Directive. The quantity of allowances to be auctioned by the Member States

shall be distributed in accordance with paragraph 2 of this Article.;

_____

* Decision (EU) 2015/1814 of the European Parliament and of the Council of 6

October 2015 concerning the establishment and operation of a market stability

reserve for the Union greenhouse gas emission trading scheme and amending

Directive 2003/87/EC (OJ L 264, 9.10.2015, pp. 1).’

(b) in paragraph 2, the following sentence is added to point (b):

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‘Spain, Cyprus, Malta and Slovenia shall use their additional allowances for

the priority purposes listed in Article 10(3) first subparagraph.’;

(c) paragraph 3 is replaced by the following:

‘3. Member States shall determine the use of revenues generated from the

auctioning of allowances referred to in paragraph 2 of this Article, except for

the revenues established as own resources in accordance with Article 311, third

paragraph, TFEU and entered in the Union budget. Member States shall use at

least 50% of those revenues, with the exception of the revenues used for the

compensation of indirect carbon costs referred to in Article 10a(6) of this

Directive, or the equivalent in financial value of those revenues, to support the

decarbonisation of ETS sectors, for one or more of the following priority

purposes:

(a) to top-up the support mechanisms in this Directive for reducing climate

impacts from ETS sectors;

(b) to develop clean energies, electricity storage and grids for electricity

transmission and distribution particularly around industrial clusters in

view of the increased electricity demand from industrial decarbonisation

projects, as well as to meet the commitments on renewable energies, on

energy efficiency and inter-connection set out in National Energy and

Climate Plans;

(c) to finance investments in industrial decarbonisation and enabling

measures for such decarbonisation, including investments in industrial

electrification, clean industrial production technologies, the capture, use

and storage of CO2 and the development of the CO2 transport network;

(d) measures to decarbonise the maritime sector, including the improvement

of the energy efficiency of ships, ports, innovative technologies and

infrastructure, electrification and sustainable alternative fuels, such as

hydrogen and ammonia that are produced from renewables, and zero-

emission propulsion technologies;

(e) measures to invest in innovative technologies to decarbonise aviation,

including support to electrification, actions to reduce the overall climate

impacts of aviation and increase production of low-and zero-carbon

fuels, and measures to support the decarbonisation of airports;

(f) measures to support modal shift towards decarbonised forms of transport;

(g) to support competent authorities involved in the collection and disposal

of municipal waste in the implementation of measures in line with the

higher steps of the waste hierarchy as defined in Article 4 of the

Directive 2008/98/EC, namely waste prevention, preparing for reuse,

separate collection, sorting and recycling;

(h) circularity measures to reduce emissions from ETS sectors;

(i) to support the development of lead markets for low-carbon and circular

products such as bio-based fertilisers, bio-based chemicals or green steel;

(j) to finance research and development necessary for any of the purposes in

points (a) to (h).’;

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Notwithstanding the first subparagraph, Member States may use the remainder

of those revenues for which they determine the use for the following purposes:

(a) permanent carbon removal methods, such as direct air capture and

storage;

(b) measures to avoid deforestation and support the protection and

restoration of peatland, forests and other land-based ecosystems or

marine-based ecosystems, including measures that contribute to the

protection, restoration and better management thereof, in particular as

regards marine-protected areas, and increase biodiversity-friendly

afforestation and reforestation, including in developing countries that

have ratified the Paris Agreement;

(c) forestry and soil sequestration;

(d) investments to reduce agricultural emissions linked to more efficient use

of fertilisers in the Union or to greenhouse gases other than CO2, and to

support end-users in the uptake of bio-based, organic and circular

fertilisers, in line with the Fertilizer Action Plan;

(e) measures intended to reduce emissions in buildings, by improving energy

efficiency, district heating systems and insulation, to support efficient

and renewable heating and cooling systems, or to support the deep and

staged deep renovation of buildings in accordance with Directive

2024/1275 of the European Parliament and of the Council*, starting with

the renovation of the worst-performing buildings;

(f) to provide financial support to address social aspects related to climate

change in lower- and middle-income households;

(g) to cover administrative expenses of the management of the EU ETS;

(h) to adapt to the impacts of climate change;

(i) to finance climate actions in vulnerable third countries, including the

adaptation to the impacts of climate change and measures to transfer

technologies;

(j) to promote skill formation and reallocation of labour in order to

contribute to a just transition to a climate-neutral economy, in particular

in regions most affected by the transition of jobs, in close coordination

with the social partners, and to invest in upskilling and reskilling of

workers potentially affected by the transition, including workers in

maritime transport;

(k) to address any residual risk of carbon leakage in the sectors covered by

Annex I to Regulation (EU) 2023/956 of the European Parliament and of

the Council**, supporting the transition and promoting their

decarbonisation in accordance with State aid rules.

The use of revenues under the first and second subparagraph shall not prolong

reliance on fossil fuels in power generation and shall be consistent with the

transition to a safe and sustainable low-carbon economy, the objectives of the

Union's 2040 climate and energy policy framework, and the climate-neutrality

objective set out in Regulation (EU) 2021/1119.

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Member States shall inform the Commission as to the use of revenues and the

actions taken pursuant to paragraphs 3 of this Article in their reports submitted

under Article 19(2) of Regulation (EU) 2018/1999 of the European Parliament

and of the Council***, specifying, where relevant and as appropriate, which

revenues are used and the actions that are taken to implement their integrated

national energy and climate plans submitted in accordance with that

Regulation, and their territorial just transition plans prepared in accordance

with Article 11 of Regulation (EU) 2021/1056 of the European Parliament and

of the Council****. Member States shall disburse their revenues by the third

year after the year of generation.

The reporting shall be sufficiently detailed to enable the Commission to assess

the Member States’ compliance with paragraphs 3 of this Article, and Article

30m.;

___________

* Directive 2024/1275 of the European Parliament and of the Council of 24

April 2024 on the energy performance of buildings (recast) (OJ L 1275

8.5.2024, p. 1).

** Regulation (EU) 2023/956 of the European Parliament and of the Council of

10 May 2023 establishing a carbon border adjustment mechanism (OJ L 130,

16.5.2023, p. 52).

*** Regulation (EU) 2018/1999 of the European Parliament and of the Council

of 11 December 2018 on the Governance of the Energy Union and Climate

Action, amending Regulations (EC) No 663/2009 and (EC) No 715/2009 of the

European Parliament and of the Council, Directives 94/22/EC, 98/70/EC,

2009/31/EC, 2009/73/EC, 2010/31/EU, 2012/27/EU and 2013/30/EU of the

European Parliament and of the Council, Council Directives 2009/119/EC and

(EU) 2015/652 and repealing Regulation (EU) No 525/2013 of the European

Parliament and of the Council (OJ L 328, 21.12.2018, p. 1)

**** Regulation (EU) 2021/1056 of the European Parliament and of the

Council of 24 June 2021 establishing the Just Transition Fund (OJ L 231,

30.6.2021, p. 1).’

(a) paragraph 5 is replaced by the following:

‘5. The Commission shall monitor the functioning of the European carbon

market. Each year, it shall submit a report to the European Parliament and to

the Council on the functioning of the carbon market, including the operation of

the auctions, liquidity and the volumes traded, and summarising the

information provided by the European Securities and Markets Authority

(ESMA) in accordance with paragraph 6 and the information provided by

Member States on the financial measures referred to in Article 10a(6). Member

States shall submit any relevant information and report yearly by 30 June on

the basis of a questionnaire or outline adopted by the Commission in the form

of implementing acts pursuant to Article 21(1). The Commission shall publish

the report on the functioning of the European carbon market within six months

of receiving the relevant information and reports from the Member States.’;

(b) the following paragraph is added:

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‘7. Where a Member State decides to top up ETS mechanisms that use

allowances, the Member State may maintain this approach by refraining from

auctioning so as to give its support in the same manner.’;

(15) Article 10a is amended as follows:

(a) in paragraph 1, the first subparagraph is replaced by the following:

‘1. The Commission is empowered to adopt delegated acts in accordance with

Article 23 to supplement this Directive concerning the Union-wide and fully

harmonised rules for the allocation of allowances referred to in paragraphs 3b

to 3d, 5, 7 and 19 of this Article.’;

(b) paragraph 1a is amended as follows:

(i) the second subparagraph is replaced by the following:

‘By way of derogation from the first subparagraph of this paragraph, for

the first years of application of Regulation (EU) 2023/956, the production

of goods listed in Annex I to that Regulation shall benefit from free

allocation, in accordance with paragraphs 3a to 3d, in reduced amounts.

A factor reducing the free allocation for the production of those goods

shall be applied (CBAM factor). The CBAM factor shall be equal to 100

% for the period between the entry into force of that Regulation and the

end of 2025 and, subject to the application of provisions referred to in

Article 36(2), point (b), of that Regulation, shall be equal to 97,5 % in

2026, 95 % in 2027, 91.5 % in 2028, 81 % in 2029, 59% in 2030, 48% in

2031, 37,5% in 2032 and 27% in 2033, 15% from 2034 to 2037. From

2038, a CBAM factor of 0 % shall apply.’;

(ii) the following subparagraph is added after the second subparagraph:

‘Notwithstanding the second subparagraph, when additional goods are

added to the list in Annex I to Regulation (EU) 2023/956 whose

production benefits from free allocation, for these additional goods the

CBAM factor shall be equal to 97,9 % in the first year and 95,8 % in the

second year of the next five-year period referred to in Article 11 of this

Directive following their inclusion in that Annex and shall decrease with

the same CBAM factor set out in the second subparagraph in each

subsequent year starting with the CBAM factor of the year 2028. The

CBAM factor shall be equal to 100 % in the period between the start of

their inclusion in the Annex and the first year of the next five-year period

referred to in Article 11 of this Directive.’;

(iii) the fourth subparagraph is replaced by the following:

‘With the exception of the allowances reserved for Articles 10cb and

10ce pursuant to Article 10cc, and of allowances set aside for new

entrants pursuant to paragraph 7, first subparagraph, of this Article,

allowances resulting from the reduction of free allocation shall be

auctioned in accordance with Article 10(1).’

(c) in paragraph 2 is amended as follows:

(i) the following subparagraph is inserted after the second subparagraph:

‘The Commission shall supplement this Directive by providing, in the

delegated acts adopted pursuant to paragraph 1, first subparagraph,

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sector-specific definitions of sector-specific heat and fuel benchmarks,

together with the corresponding system boundaries, and the starting point

values for determining the annual reduction rate for the update of the

benchmark values in the implementing acts referred to in the third

subparagraph.’;

(ii) in the third subparagraph, the following points are added after point (e):

‘(f) For the period from 2031 to 2035, the benchmark values shall

be determined in the same manner as set out in points (a) and (g) of this

subparagraph, on the basis of information submitted pursuant to Article

11 for the years 2026 and 2027, and on the basis of applying the annual

reduction rate in respect of each year between 2008 and 2033.

Information submitted by a third country for installations in its territory

in accordance with an agreement concluded pursuant to Article 25 may

also be taken into account.

(g) Where the annual reduction rate exceeds 2 % or is below 0,3 %,

the benchmark values for the period from 2031 to 2035 shall be the

benchmark values applicable in the period from 2013 to 2020 reduced by

whichever of those two percentage rates is relevant, in respect of each

year between 2008 and 2033.

(h) For the period from 2036 to 2040, the benchmark values shall

be determined in the same manner as set out in points (a) and (g) of this

subparagraph, on the basis of information submitted pursuant to Article

11 for the years 2031 and 2032 and on the basis of applying the annual

reduction rate in respect of each year between 2008 and 2038.

Information submitted by a third country for installations in its territory

in accordance with an agreement concluded pursuant to Article 25 may

also be taken into account.

(i) Where the annual reduction rate exceeds 2% or is below 0,3%,

the benchmark values for the period from 2036 to 2040 shall be the

benchmark values applicable in the period from 2013 to 2020 reduced by

whichever of those two percentage rates is relevant, in respect of each

year between 2008 and 2038.’;

(d) the following paragraphs are inserted after paragraph 2:

‘3a. Starting in 2031, the third to sixth subparagraphs of paragraph 1 of this

Article and the second to fifth subparagraphs of Article 10b(4) shall not apply.

3b. Operators of installations carrying out activities listed in Annex I shall

establish, make publicly available and submit a plan to invest in

decarbonisation in the EU (‘Invest in EU decarbonisation plan’) for the

installations for which they apply for free allocation.

Operators of incumbent installations shall submit the Invest in EU

decarbonisation plan to the competent authority together with information

submitted by 30 September 2029 and every five years thereafter pursuant to

Article 11(1), second subparagraph. Operators of new entrants shall submit the

Invest in EU decarbonisation plan to the competent authority together with

their application for free allocation in accordance with the procedures

established in delegated acts adopted pursuant to the first subparagraph of

paragraph 1 of this Article.

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By way of derogation from the second subparagraph of this paragraph, the

Invest in EU decarbonisation plan may be submitted at a later date, together

with activity-level change reports submitted in accordance with the

implementing acts adopted pursuant to paragraph 21.

The plan referred to in the first subparagraph of this Article shall be consistent

with the climate-neutrality objective set out in Article 2(1) of Regulation (EU)

2021/1119 and shall include all the following elements:

(a) measures and investments in line with climate neutrality by 2050 at the

level of the installation, considering the role of circularity measures,

excluding the use of carbon offset credits (‘decarbonisation measures and

investments’);

(b) intermediate targets to measure, by 31 December 2035 and by 31

December of each fifth year thereafter, progress made towards reaching

climate neutrality through the measures and investments as set out in

point (a).

For each five-year period for free allocation referred to Article 11, the

decarbonisation investments referred to in point (a) shall correspond to a

volume at least equivalent to the economic value of 100% of the amount of free

allocation under the relevant five-year period. These decarbonisation

investments shall qualify as eligible costs, be implemented in the EU and lead

to significant emissions reduction at the level of the installation within the

relevant five-year period for which that installation is applying for free

allocation, in accordance with the list and criteria established pursuant to

paragraph 3e of this Article.

3c. Upon submission of an Invest in EU decarbonisation plan that has been

verified in accordance with Article 15 and approved by the competent

authority, 80 % of the amount of free allocation to be received under the

relevant five-year period shall be allocated annually to the installation.

Where an installation has received allowances in accordance with the first

subparagraph during each five-year period starting in 2031, but has then

relocated or otherwise, directly or indirectly, transferred, in whole or in part, its

relevant production capacity or the associated economic activity outside the

Union, the Member State shall require the operator to reimburse the received

allowances for the relevant allocation period. In the absence of reimbursement,

the Member State shall deduct free allowances in the following years.

The remaining 20 % of the amount of free allocation for that five-years period

shall only be allocated to the installation after the confirmation, no later than

two years after the end of the relevant five-year period, by the competent

authority where the decarbonisation investments are implemented that the

following conditions are met:

(a) the decarbonisation investments were implemented by that time and they

were implemented in the EU;

(b) eligible costs corresponding to a volume at least equivalent to the

economic value of 100% of the amount of free allocation under the

relevant five-year period were invested;

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(c) the existing annual reports referred to in Article 15 show that significant

emissions reductions were achieved at the level of the installation in the

relevant five-year period.

Allowances that are not allocated in accordance with the first and third

subparagraphs or that are returned in accordance with the second subparagraph

shall be made available for free allocation in the subsequent five-year period.

By way of derogation from the first subparagraph, where a project that was

selected for the award of support under the Industrial Decarbonisation Bank

and Investment Booster established under Articles 10cc, 10cd and 10ce or the

Innovation Fund referred to in Article 10cb is being implemented in the

installation during the five-year period under which it applies for free

allocation, the operator of that installation shall be exempted from the

obligation to establish a plan in accordance with paragraph 3b and shall receive

80 % of the amount of free allocation as referred to in the first subparagraph

without additional verification. By way of derogation from the third

subparagraph, the remaining 20 % of the amount of free allocation for the

relevant five-year period shall only be allocated to that same installation, after

the launch of the disbursement of support to the project under the Innovation

Fund or upon the start of construction regarding projects awarded support

under the Industrial Decarbonisation Bank or Investment Booster, and after

where the competent authority confirms in accordance with the third

subparagraph that eligible costs corresponding to a volume at least equivalent

to the economic value of 100% of the amount of free allocation under the

relevant five-year period were invested in the EU.

The requirements set out in paragraph 3b and in the first and third

subparagraphs of this paragraph shall not apply to the 10 % most efficient

installations in a sector or subsector in the Union referred to in the first

subparagraph of Article 10a(2) and in respect of the years used to determine

the revised benchmark values pursuant to the third subparagraph of that Article

for the relevant five-year free allocation period, to zero emissions or low-

carbon installations, to installations for which the operators, following a change

in their production processes in accordance with Article 2(1), decide that they

are is to remain within the scope of the EU ETS.

3d. Operators of installations applying for free allocation in accordance with

this Article may request to form a pool of installations for the purposes of

fulfilling jointly the investment requirements under paragraph 3b, fifth

subparagraph.

Operators who wish to form a pool shall apply to the competent authority by

submitting an agreement they concluded for the purpose of fulfilling jointly the

investment requirements (‘joint decarbonisation investment agreement’)

specifying the installations and the period for which they want to form the

pool. The joint decarbonisation investment agreement may relate to five or

more calendar years, provided that the minimum duration of each agreement

fully covers the five-year period referred to in Article 11 for which the

installations are applying for free allocation.

The joint decarbonisation investment agreement shall be concluded before

submitting an application for free allocation and shall be submitted to the

competent authority together with information submitted pursuant to the

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second subparagraph of Article 11(1). After the joint decarbonisation

agreement has been submitted to the competent authority, other operators may

only be added to that agreement under the next five-year period for free

allocation referred to in Article 11.

Where a joint decarbonisation investment agreement is concluded, the

decarbonisation investments referred to in the fifth subparagraph of paragraph

3b shall correspond to a volume at least equivalent to the economic value of

100% of the amount of free allocation allocated to all installations that are part

of the pool under the relevant five-year period.

3e. The Commission shall supplement this Directive by providing, in close

consultation with the relevant stakeholders, in the delegated act adopted

pursuant to the first subparagraph of paragraph 1, complementary

implementation details as regards the free allocation provisions set out in

paragraphs 3b to 3d of this Article, including:

(a) a list of requirements and eligible costs to qualify as decarbonisation

investments;

(b) rules concerning the qualification as significant emissions reduction;

(c) a methodology for determining whether the measures and investments

listed in the Invest in EU decarbonisation plan lead to significant

emissions reduction;

(d) the detailed timeline for the submission of the Invest in EU

decarbonisation plans;

(e) the methodology for determining the economic value of the quantity of

free allowances received;

(f) rules regarding the reimbursement of allowances under paragraph 3c,

second subparagraph;

(g) the requirements for installations to qualify as zero-emissions or low

carbon under paragraph 3c, sixth subparagraph;

(h) the detailed conditions that shall apply to the derogations under

paragraph 3c, fifth and sixth subparagraphs;

(i) the details of the application procedure to form a pool, including the

minimum content and detailed conditions for the application to form a

pool pursuant to paragraph 3d (including for installations in multiple

Member States) and detailed timeline for its submission to the competent

authority;

(j) the liability distribution for the fulfilment of investment requirements

referred to in paragprah 3b, fifth subparagraph, when operators choose to

form a pool.

When determining the requirements for installations to qualify as zero

emissions or low carbon, the Commission shall take into account the estimated

sector specific emissions reductions that are necessary by 2040 and 2050 to be

in line with the climate-neutrality objective set out in Article 2(1) of Regulation

(EU) 2021/1119, as well as the available low carbon technologies and other

abatement options available for each sector, taking into account the net-zero

technologies listed in Article 4 of Regulation (EU) 2024/1735.

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The Commission is empowered to adopt implementing acts to specify the

following:

(i) the content of the information referred to in the fourth subparagraph of

paragraph 3b, points (a) and(b);

(ii) the format of the Invest in EU decarbonisation plans.

When specifying the format and content of the Invest in EU decarbonisation

plans, the Commission shall seek synergies with similar plans as provided for

in Union law and aim to provide for a simple format for the Invest in EU

decarbonisation plans.

Such implementing acts shall be adopted in accordance with the examination

procedure referred to in Article 22a(2).’;

(e) the following paragraph is added after paragraph 3e:

‘3f. Where an installation received more allowances than the amount to be

allocated in accordance with the rules for free allocation laid down under this

Article, the competent authority shall require the installation to return such

excess allowances and instruct the national administrator to transfer returning

excess allowances.’;

(f) paragraph 5a is replaced by the following:

‘5a. By way of derogation from paragraph 5 of this Article, from the total

quantity of allowances to be auctioned by the Member States pursuant to

Article 10(1) between 2031 and 2040, an amount equivalent to 4 % of the

Union-wide quantity of allowances referred to in Article 9, for the period 2031

and 2040, shall, to the extent necessary, be used to increase the maximum

amount available under paragraph 5 of this Article.’

(g) paragraph 5b is replaced by the following:

‘5b. Until the end of 2030, where less than 3 % of the total quantity of

allowances is needed to increase the maximum amount available under

paragraph 5 of this Article, and from 2031 to 2040 where less than 4% of the

total quantity of allowances is needed to increase the maximum amount

available under paragraph 5 of this Article, the following shall apply:

(a) a maximum of 50 million allowances shall be used to increase the

amount of allowances available to support innovation in accordance with

the Innovation Fund established pursuant to Article 10a(8) or Article

10cb;

(b) any remaining allowances shall be used in accordance with Article

10cc.’;

(h) paragraph 6 is replaced by the following:

‘6. Member States should adopt financial measures in accordance with the

second and fourth subparagraphs of this paragraph in favour of sectors or

subsectors which are exposed to a genuine risk of carbon leakage due to

significant indirect costs that are actually incurred from greenhouse gas

emission costs passed on in electricity prices, provided that such financial

measures are in accordance with State aid rules, and in particular do not cause

undue distortions of competition in the internal market. The financial measures

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adopted should not compensate indirect costs covered by free allocation in

accordance with the benchmarks established pursuant to paragraph 1.

Member States shall also seek to use no more than 25 % of the revenues

generated from the auctioning of allowances for the financial measures referred

to in the first subparagraph.

Member States that have the financial measures referred to in the first

subparagraph in place shall inform the Commission as to the total amount of

compensation provided per benefitting sector and subsector in their reports

submitted under Regulation (EU) 2018/1999, as well as information on the

implementation of the measures and their contribution to decarbonisation. In

addition, in any year in which a Member State uses more than 25 % of their

revenues generated from the auctioning of allowances for such purposes, it

shall set out the reasons for exceeding that amount and shall include relevant

information on electricity prices for large industrial consumers benefiting from

such financial measures, without prejudice to requirements regarding the

protection of confidential information, as well as include information on

whether due consideration has been given to other measures to sustainably

lower indirect carbon costs in the medium to long term.

The Commission shall include in the report provided for in Article 10(5), inter

alia, an assessment of the effects of such financial measures on the internal

market and, where appropriate, recommend any measures that may be

necessary pursuant to that assessment.

Those measures shall be such as to ensure that there is adequate protection

against the risk of carbon leakage, based on ex ante benchmarks for the indirect

emissions of CO2 per unit of production. Those ex ante benchmarks shall be

calculated for a given sector or subsector as the product of the electricity

consumption per unit of production corresponding to the most efficient

available technologies and of the CO2 emissions of the relevant electricity

production mix.’;

(i) paragraph 7 is amended as follows:

(i) the first subparagraph is replaced by the following:

‘Allowances from the maximum amount referred to in paragraph 5 of

this Article which were not allocated for free by 2020 shall be set aside

for new entrants, together with 200 million allowances placed in the

market stability reserve pursuant to Article 1(3) of Decision (EU)

2015/1814 and 50 million allowances from the quantity of allowances

resulting from the reduction of free allocation referred to in paragraph

1a of this Article.’;

(ii) the third subparagraph is deleted;

(j) paragraphs 8 and 8a are deleted;

(16) Article 10b is amended as follows:

(a) in paragraph 1, second sentence, ‘2030’ is replaced by ‘2040’;

(b) in paragraph 4, the first subparagraph is replaced by the following:

‘4. Other sectors and subsectors are considered to be able to pass on more of

the costs of allowances in product prices, and shall be allocated allowances free

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of charge at 30 % of the quantity determined pursuant to Article 10a. Unless

otherwise decided in the review pursuant to Article 30, free allocations to other

sectors and subsectors, except district heating, shall decrease by equal amounts

after 2026 so as to reach a level of no free allocation in 2030. Free allocation to

district heating shall decrease by equal amounts after 2030 so as to reach a

level of no free allocation in 2040.’;

(17) the following articles are inserted:

‘Article 10cb

Innovation Fund

1. A fund (the ‘Innovation Fund’) is hereby established to support bringing innovation to

market, and scaling-up low-, zero-carbon and carbon negative products, processes and

technologies that contribute significantly to the decarbonisation of sectors covered by this

Directive.

2. The Innovation Fund shall be funded from the auctioning of 200 million allowances

resulting from the reduction of free allocation in line with Article 10a(1a). To the extent that

fewer than 50 million allowances remain available following the increase of the maximum

amount under Article 10a(5) in accordance with Article 10a(5b), the difference shall be made

available to the Innovation Fund from the quantity which could otherwise be auctioned

pursuant to Article 10 in 2028.

Allowances destined for the Innovation Fund shall be auctioned in accordance with Article

10(4), with proceeds constituting external assigned revenue under Article 21(5) of Regulation

(EU, Euratom) 2024/2509. The Commission shall ensure adequate resources are available for

annual actions under the Innovation Fund. To this end, budgetary commitments may be

broken down into annual instalments and resources be frontloaded while ensuring a balanced

distribution of the fund allowances over time.

Member States may support projects that meet all selection criteria but cannot be funded from

the relevant call budgets by making additional financial resources available. To this end, they

shall notify the Commission of their intention to do so before the closure of the relevant call

for proposals.

3. The Innovation Fund shall support projects in the territory of all Member States in

sectors listed in Annex I and III, including products, technologies and processes substituting

carbon-intensive ones; innovative renewable energy and energy storage technologies,

including the manufacturing of clean technologies; electrification; environmentally safe

carbon capture and utilisation (CCU) that contributes substantially to mitigating climate

change, environmentally safe capture, transport and geological storage (CCS) of CO2, in

particular for hard-to-abate industrial emissions; direct atmospheric CO2 capture with safe,

sustainable and permanent storage (DACCS); and breakthrough innovative technologies and

infrastructure, including electrification, production of low- and zero-carbon fuels, to

decarbonise maritime and aviation. For the aviation and maritime sectors, the Innovation

Fund may also support measures to reduce the overall climate impact, including non-CO2

effects.

4. The Innovation Fund shall prioritise innovative technologies at a high level of

technological readiness that are not yet commercially viable in line with the Union’s climate

and energy targets as well as circularity objectives.

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5. The Commission shall implement the Innovation Fund in accordance with Regulation

(EU, Euratom) 2024/2509 in direct management or in indirect management through bodies

referred to in Article 62(1)(c) of that Regulation.

The Innovation Fund shall be implemented in synergy with other Union programmes. An

action that has received a Union contribution from another programme may also receive

another contribution under the Innovation Fund. The rules of the relevant Union programme

shall apply to the corresponding contribution and, if it is based on eligible costs, the

cumulative support from the Innovation Fund and that other Union programme shall not

exceed the total eligible costs of the action and may be calculated on a pro-rata basis.

Support from the Innovation Fund may take any form laid down in Regulation (EU, Euratom)

2024/2509 where necessary to achieve the objective of this Directive. By way of derogation

from Article 212(3) of Regulation (EU, Euratom) 2024/2509 any revenue and repayments

from instruments deployed under this Article paid back to the Commission shall be used for

the Innovation Fund as external assigned revenue pursuant to Article 21(5) of Regulation

2024/2509.

In accordance with Article 196(2) of Regulation (EU, Euratom) 2024/2509, financial

contributions may, where necessary for the implementation of projects deemed essential for

security and economic resilience, cover actions that started prior to the date of the submission

of the proposal for those actions.

Where the Commission decides to disburse the Innovation Fund support through contributions

to the ECF InvestEU Instrument, the Innovation Fund support shall be implemented in

accordance with the rules applicable to the ECF InvestEU Instrument. However, the eligibility

of the projects shall be assessed in accordance with this Article.

In the case of grants, projects shall be selected through open calls for proposals in a

transparent manner. In preparing the calls for proposals, the Commission shall strive to ensure

that all sectors are duly covered and that the selection process remains simple and accessible.

The Commission shall take measures to ensure that the calls are communicated as widely as

possible, and especially to small and medium-sized enterprises. Grant funding shall be

disbursed subject to pre-determined milestones in line with project advancement.

The Commission may also select projects through competitive bidding. To deter speculative

applications in calls for proposals or competitive bidding, the Commission may require

applicants to provide a bid bond equivalent to a percentage share of the estimated total

contract value, issued by an EU-authorised financial institution, as a guarantee of serious

intent. The Commission may also require a completion bond issued by an EU-authorised

financial institution equivalent to a percentage share of the total maximum requested support.

The Commissions shall call a bid bond or a completion bond in the event of non-fulfilment of

the obligations and commitments outlined in the grant agreement or bid. Any amount

forfeited in accordance with this paragraph shall be used for the Innovation Fund as external

assigned revenue pursuant to Article 21(5) of Regulation 2024/2509.

6. In implementing the Innovation Fund, the Commission shall strive to ensure effective,

quality-based geographical coverage across the Union, ensure adequate participation of

SME’s, in particular start-ups and scale-ups, and create synergies with other funding available

at EU level, in particular Horizon Europe and the European Competitiveness Fund. In this

context, the Commission may provide project development assistance and, on request,

technical assistance to Member States with low effective participation in the Innovation Fund

to address specific project challenges in those countries and improve geographical coverage.

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The Competitiveness Seal referred to in Article 8 Regulation (EU) […]/[…] of the European

Parliament and of the Council* may be awarded to projects which have been assessed in an

award procedure under the Innovation Fund and comply with the minimum quality

requirements of that award procedure. The documents related to the award procedure may set

out additional conditions.

7. Projects funded under this Article shall be required to share knowledge with other

relevant projects and with Union-based researchers who have a legitimate interest.

8. The Commission shall report annually to the Climate Change Committee, the

European Parliament and the Council on the implementation of the Innovation Fund,

providing an analysis of funded projects by sector and Member State and an assessment of

their expected contribution to Union climate neutrality under Regulation (EU) 2021/1119.

Those reports shall be made public.

9. The Commission is empowered to adopt delegated acts in accordance with Article 23

to supplement this Article with rules on the operation of the Innovation Fund, including the

governance, eligibility, forms of support and related conditions, selection procedure, selection

criteria, and procedural, organisational, and financial rules to ensure an appropriate

implementation of the Innovation Fund in accordance with this Article.

___________

* [OJ reference once adopted to Regulation (EU) […]/[…] of the European Parliament and of

the Council on establishing the European Competitiveness Fund (‘ECF’) including the

specific programme for defence research and innovation activities.]

Article 10cc

Industrial Decarbonisation Bank

1. An instrument to support the scaling up and deployment of the technologies, processes

and techniques to decarbonise industries (the ‘Industrial Decarbonisation Bank) is established

starting from 2028. It shall accelerate industrial decarbonisation, including electrification,

within the Union through supporting capital investment, including grid connection, storage

and flexibility costs incurred by projects, and operational expenditure for emission reductions

or removals in stationary installations carrying out or substituting industrial production

processes referred to in Annex I of this Directive, including in installations for the

incineration of waste. In the period from 2028 to 2030, 400 million allowances from the

quantity of allowances available pursuant to the second indent of Article 10a(5b) shall be

reserved to support industrial decarbonisation projects on a ‘first in, first served’ basis in

accordance with Article 10cd.

Where the allowances available pursuant to the second indent of Article 10a(5b) are less than

the 400 million allowances referred to in the previous sentence, the difference shall be

covered by allowances set aside pursuant to Article 10a(7).

The allowances shall be available for projects in all Member States. In the first 18 months of

operation, a share of allowances shall be reserved for projects in the group of Member States

with a GDP per capita at market prices below 75 % of the Union average in the period 2022 to

2024, equal to 100 million allowances. After 18 months this reserved amount shall be reduced

to 60 million.

2. In 2031, any remaining allowances from the 60 million allowances reserved for

projects in Member States with a GDP per capita at market prices below 75% of the Union

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average in the period 2022 to 2024, shall be used in accordance with Article 10d. Any further

remaining allowances shall be used in accordance with Article 10ce.

In the period from 2031 to 2040, 400 million allowances from Union-wide quantity of

allowances referred to Article 9 shall be reserved to support industrial decarbonisation

projects in accordance with Article 10ce. These allowances shall be auctioned in accordance

with Article 10(4), with proceeds constituting external assigned revenue under Article 21(5)

of Regulation (EU, Euratom) 2024/2509.

Where the amount of allowances referred to in paragraph 1 is fully used in accordance with

Article 10cd, the Commission shall make available support to projects in accordance with

Article 10ce earlier than 2031. The amount of allowances auctioned by Member States

pursuant to Article 9 shall be reduced where necessary to enable this earlier start. Allowances

corresponding to the revenues generated from that amount shall be returned to Member States

starting in 2031 from the allowances reserved in accordance with the second subparagraph of

this paragraph.

3. Member States may support projects that meet all relevant criteria but cannot be

funded from the relevant award procedure’s budget under the Industrial Decarbonisation Bank

pursuant to Article 10ce by making additional financial resources available. To this end, they

shall notify the Commission of their intention to do so before the closure of the relevant

award procedure.

4. Any revenues generated by activities under Articles 10cc and 10ce shall constitute

external assigned revenue within the meaning of Article 21(5) of Regulation (EU, Euratom)

2024/2509 to the Industrial Decarbonisation Bank.

5. To ensure efficient use of Union resources, the Commission shall ensure synergies

between the Industrial Decarbonisation Bank and the European Competitiveness Fund,

particularly its ‘Clean Transition and Industrial Decarbonisation’ window. The

Competitiveness Seal referred to in Article 8 of Regulation […]/[…] may be awarded to

projects which have been assessed under the Industrial Decarbonisation Bank’s procedures

provided they comply with all quality requirements set out in the documents related to that

procedure.

6. The Commission is empowered to adopt delegated acts in accordance with Article 23

to supplement this Directive with rules on the operation of the Industrial Decarbonisation

Bank, including procedural, organisational, and financial rules to ensure an appropriate

implementation of the Industrial Decarbonisation Bank.

Article 10cd

Investment booster

1. Until 2030, in line with Article 10cc paragraph 1, the Commission shall support under

the Industrial Decarbonisation Bank projects through allocating allowances based on a fixed

carbon premium to eligible projects within the Union. The Commission shall publish open

invitations for submissions of applications on the basis of which it will pre-select projects.

The allowances shall then be allocated to pre-selected projects in a chronological order based

on the date and time of submission of a completion bond until the amount referred to in

Article 10cc is allocated or the Commission closes the invitation for submissions.

2. For the allocation of the allowances, including the pre-selection of projects, referred to

in the first paragraph, the Commission shall publish Terms and Conditions developed in

consultation with stakeholders. Those Terms and Conditions shall, in particular, set the fixed

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premium rate per tonne of CO2 emissions avoided, eligibility criteria, minimum requirements

as regards emission reductions, mandatory documentation, size of the completion bond and

monitoring and verification requirements. The Terms & Conditions may also provide

mechanisms for sharing possible gains and for ensuring best value for money, such as a

review of the fixed premium rate should there be indications that it is no longer appropriate in

light of market developments and/or differentiated Terms and Conditions.

3. The completion bond referred to in paragraph 1 shall be issued by an EU-authorised

financial institution equivalent to a percentage share of the total maximum requested support.

It shall act as a performance guarantee, ensuring the project’s timely implementation. It shall

be released in two instalments, with 50% released upon start of physical construction and 50%

upon start of operations.

4. Upon formal approval of the allocation under this Article, projects shall start physical

construction within a maximum period of 30 months set in the relevant Terms and Conditions.

Start of physical construction in the sense of this Article shall mean the start of building or

assembly works on the project site, excluding preparatory works such as obtaining permits,

conducting Front-End Engineering Design and other studies, or undertaking site clearance.

Following the start of physical construction within the period set in the first sentence of this

paragraph, the Commission shall release half of the completion bond. In the event a project

has not started physical construction within the period set in the first sentence of this

paragraph, the Commission shall call the completion bond in full. In addition, the support

shall be revoked and all entitlements of the beneficiary of the support shall cease.

5. Following the start of operations of the project, the beneficiary of the support shall

receive allowances periodically, upon independent verification of emissions avoidance, for a

maximum period of 10 years. The Commission shall release the outstanding half of the

completion bond. In case a project begins physical construction but fails to start operations,

the Commission shall call the outstanding half of the completion bond. In addition, the

support shall be revoked and all entitlements of the beneficiary of the support shall cease.

6. The allocation of allowances referred to in the previous paragraph shall correspond to

the verified tonnes of CO₂ emissions avoided, multiplied by the fixed premium rate and

divided by the average of the price of allowances in the auctions carried out in accordance

with the delegated acts adopted pursuant to Article 10(4) of this Directive of the last 6 months

preceding the allocation decision. The allocation of allowances under this paragraph may take

into account possible other public support received for the project.

The Commission shall ensure appropriate accounting of the number of available allowances,

before it adopts a decision on the allocation of allowances under this Article. It shall notably

check that the remaining number of allowances reserved pursuant to Article 10cc is sufficient

to cover the estimated demand for the allocation of allowances. Where more allowances need

to be allocated to fulfil commitments taken, the Commission may take those additional

allowances from the amount available pursuant to Article 10ce(1).

7. The Commission is empowered to adopt delegated acts in accordance with Article 23

to supplement this Directive with rules on the operation of the Industrial Decarbonisation

Bank as regards the Investment Booster, including eligibility rules, the pre-selection

procedure and criteria, the allocation of allowances as well as the completion bond.

Article 10ce

Industrial Decarbonisation Bank phase two

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1. From 2031, the Commission shall use the revenues from the number of allowances

reserved in line with Article 10cc reserving 400 million allowances to support industrial

decarbonisation projects within the Union through competitive bidding procedures awarding

Carbon Contracts for Difference (CCfD) or carbon premia without prejudice to the use of

other forms of support where appropriate.

2. Prior to launching a competitive bidding procedure, the Commission shall publish

Terms and Conditions developed in consultation with stakeholders to specify in particular:

eligibility criteria, mandatory documentation, size of the bid bond and the completion bond as

well as monitoring and verification requirements, ensuring transparency.

3. CCFDs shall support industrial decarbonisation projects by compensating for the

difference between the strike price determined via the competitive bidding procedure and the

prevailing carbon price on the common auction platform over a term of up to 10 years. The

instrument shall operate with payments conditional on verified emission reductions in line

with the relevant Terms and Conditions. The Commission may require beneficiaries to repay

excess support if the carbon price surpasses the strike price by more than a pre-determined

percentage, ensuring cost-efficiency. Any such repayment shall be used under the Industrial

Decarbonisation Bank as external assigned revenue pursuant to Article 21(5) of Regulation

(EU, Euratom) 2024/2509.

4. The Commission may require bidders under the competitive bidding procedure to

submit a bid bond equivalent to a percentage share of the estimated total contract value,

issued by an EU-authorised financial institution, as a guarantee of serious intent. Where a

project is not selected, the bid bond shall be released immediately. The Commission shall call

the bid bond in the event of non-fulfilment of the obligations and commitments outlined in the

bid. Any amount forfeited in accordance with this paragraph shall be used for the Industrial

Decarbonisation Bank Fund as external assigned revenue pursuant to Article 21(5) of

Regulation (EU, Euratom) 2024/2509.

5. The Commission may also set in the Terms and Conditions a maximum period during

which the project’s physical construction shall start and may require beneficiaries to provide a

completion bond issued by an EU-authorised financial institution equivalent to a percentage

share of the total maximum requested support before the CCfD or carbon premium becomes

legally effective. Start of physical construction in the sense of this paragraph shall mean the

start of building or assembly works on the project site, excluding preparatory works such as

obtaining permits, conducting Front-End Engineering Design and other studies, or

undertaking site clearance. In the event a project has not started physical construction within

the maximum period set in the Terms and Conditions, the Commission shall call the

completion bond. In addition, the support shall be revoked and all entitlements of the

beneficiary of the support shall cease.

6. In accordance with Article 196(2) of Regulation (EU, Euratom) 2024/2509, financial

contributions may, where necessary for the implementation of projects deemed essential for

security and economic resilience, cover actions that started prior to the date of the submission

of the proposal for those actions.

7. For CCfDs or carbon premia awarded upon conclusion of a competitive bidding

procedure under this Article, financial liabilities shall not exceed the proceeds of the

auctioning of the total amount of allowances available to the Industrial Decarbonisation Bank.

Prior to the launch of a competitive bidding procedure, the Commission shall adopt a

financing decision setting out a maximum amount available for signing CCfDs or carbon

premia based on an estimate of the proceeds and payment exposure, using a plausible range of

carbon price scenarios. To ensure that no liabilities are created that exceed the budget of the

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Industrial Decarbonisation Bank, the Commission may also set in the relevant terms and

conditions rules that effectively limit the financial liability arising from contracts.

8. The Commission is empowered to adopt delegated acts in accordance with Article 23

of this Directive to supplement this Directive in order to provide detailed rules on the

implementation of CCfDs, including the competitive bidding procedure, the conditions for

eligibility, the calculation of support, budgetary provisioning, contractual obligations, and the

procedures for monitoring and verification.

9. In addition to CCfD awarded through competitive bidding, the Commission may

choose to provide support under this Article in any way and form laid down in Regulation

(EU, Euratom) 2024/2509, including through contributions to blending operations under the

Union investment support instrument. The Commission is empowered to adopt delegated acts

in accordance with Article 23 of this Directive to supplement this Directive concerning the

detailed arrangements and modalities for operationalising such other forms of support.

10. Any revenue or repayment arising from instruments deployed under this Article and

Article 10cd shall be used under the Industrial Decarbonisation Bank as external assigned

revenue pursuant to Article 21(5) of Regulation (EU, Euratom) 2024/2509.’

(18) Article 10d is amended as follows:

(a) paragraph 1 is replaced by the following:

‘1. A fund to support investments proposed by Member States with a GDP per

capita at market prices below 75 % of the Union average in the period 2022 to

2024 (the ‘beneficiary Member States’), including the financing of small-scale

investment projects, to modernise energy systems, improve energy efficiency,

enhance industrial decarbonisation and electrification shall be established for

the period from 2031 to 2040 (the ‘Modernisation Fund’). The Modernisation

Fund shall be financed through the auctioning of the following amounts of

allowances from the total quantity of allowances to be auctioned by the

Member States pursuant to Article 10(1) between 2031 and 2040:

- an amount equivalent to 2 % of the Union-wide quantity of allowances

referred to in Article 9 for the period 2031 and 2040, shall be auctioned to the

beneficiary Member States and used as set out in Article 10d;

- and an amount equivalent to 0,5 % of the Union-wide quantity of allowances

referred to in Article 9 for the period 2031 and 2040, shall be auctioned to the

benefit of the same Member States and be used to support investments on the

basis of Article 10ce.’

The funds corresponding to these amounts of allowances shall be distributed in

accordance with Annex IIb.

The investments supported shall be consistent with the aims of this Directive,

as well as the objectives of the Communication of the Commission of 11

December 2019 on ‘The European Green Deal’ and Regulation (EU)

2021/1119 and the long-term objectives as expressed in the Paris Agreement.

When selecting investments for support from the Modernisation Fund under

this Article, the beneficiary Member States shall apply criteria and procedures

which are non-discriminatory and transparent. To this end, they shall

continuously provide information about ongoing and upcoming calls for

expression of interests, calls for proposals and calls for tenders financed by the

Modernisation Fund. The beneficiary Member States shall establish effective

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and efficient management and control systems for their investments and ensure

their proper functioning in accordance with the principle of sound financial

management. The beneficiary Member States may, where appropriate, use the

resources of the Modernisation Fund to finance investments involving the

adjacent border regions within the Union. No support from the Modernisation

Fund shall be provided to energy generation facilities that use fossil fuels or

facilities that transport fossil fuels.’

(a) paragraph 2 is replaced by the following:

‘2. At least 95 % of the revenue from allowances referred to in Article 10(1),

third subparagraph, and from allowances covered by a notification pursuant to

paragraph 4 of this Article, shall be used to support investments in the

following:

(a) the generation and use of renewable energy sources, including biogas and

biomethane;

(b) the reduction of overall energy use through energy efficiency by at least

20% in industry, transport and buildings, avoiding any risk of fossil fuel

lock-in and fostering circularity, and the recovery of waste heat from

incineration plants for district heating;

(c) electrification of demand side sectors including industry, buildings and

transport;

(d) the modernisation and expansion of electricity, hydrogen, district heating

and CO2 infrastructure, including energy storage;

(e) industrial decarbonisation, including CCS and CCU and electrification;

(f) support for low-income households, including in rural and remote areas,

to address energy poverty and to modernise their heating systems;

(g) a just transition in carbon-intensive regions in the beneficiary Member

States to support the redeployment, reskilling and up-skilling of workers,

education, job-seeking initiatives and start-ups accelerating the clean

energy transition;

(h) the production of affordable low-carbon and bio-based fertilisers.’;

(b) paragraph 4 is replaced by the following:

‘4. All beneficiary Member States shall use the amount of allowances

distributed for the purposes of solidarity, growth and interconnections within

the Union specified in Article 10(2)(b) in accordance with Article 10d, to

support investments within the framework of the Modernisation Fund, thereby

increasing the resources available to them under the Fund. Any Member State

concerned may also use the amount of allowances to be auctioned by that

Member State in accordance with Article 10(2)(a), or part of that amount, in

accordance with Article 10d, Where a Member State intends to use allowances

referred to in Article 10(2)(a) under Article 10d, it shall inform the

Commission of the relevant amount at the latest by 30 September of the

preceding calendar year.’

(c) in paragraph 6, the second subparagraph is replaced by the following:

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‘Where an investment in line with the objectives of the Modernisation Fund,

which is proposed to be financed from the Modernisation Fund, does not fall

into the areas listed in paragraph 2, the investment committee shall assess the

technical and financial viability of that investment, including the emission

reductions it achieves, and issue a recommendation on financing the

investment from the Modernisation Fund. The investment committee shall

ensure that any investment financed from the Modernisation Fund achieves a

substantial improvement in emission reductions and, where relevant, in energy

efficiency. That recommendation may include suggestions regarding

appropriate financing instruments. Up to 50% of the relevant costs of an

investment which does not fall into the areas listed in paragraph 2 may be

supported with resources from the Modernisation Fund provided that the

remaining costs are financed by private legal entities.’

(d) the following sentence is added in the beginning of paragraph 10:

‘Beneficiary Member States shall make public the information about recipients

and other information referred to in Article 38(2) of Regulation (EU, Euratom)

2024/2509 where applicable in relation to support from the Modernisation

Fund.’

(e) in paragraph 11, ‘2024’ is replaced by ‘2036’.

(19) The following Article is inserted:

‘Article 10da

Rule of Law

1. Beneficiary Member States shall ensure the respect of the principles of the rule of law

as set out in Article 2, point (a), and Article 3 of Regulation (EU, Euratom) 2020/2092

throughout the implementation of the Modernisation Fund.

2. Appropriate measures as set out in paragraph 3 may be taken where it is established

that the breaches of the principles of the rule of law referred to in Article 4(2) of Regulation

2020/2092 in a beneficiary Member State affect or seriously risk affecting the sound financial

management of the Modernisation Fund in a sufficiently direct way.

3. Provided that the condition set out in paragraph 2 is fulfilled, one or more of the

following appropriate measures may be adopted, following the procedure in Article 10db.

(a) a suspension of the adoption of the disbursement decision referred to in Article

10d (3);

(b) a suspension of disbursements under disbursement decisions already adopted;

The measures adopted shall respect the conditions provided for in Article 5(2) to (5) of

Regulation 2020/2092 as appropriate.

4. The measures shall be adopted in accordance with the procedure laid down in Article

6 of Regulation 2020/2092. When triggering the procedure, the Commission shall verify that

no other means exist to protect the revenues managed under the Modernisation Fund more

effectively.

5. The measures shall be lifted in accordance with the procedure laid down in Article 7

of Regulation 2020/2092.

(20) Article 10f is replaced by the following:

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‘Article 10f

‘Do no significant harm’ principle

Revenues generated from the auctioning of allowances destined for the Modernisation Fund

pursuant to Article 10d, for the Innovation Fund pursuant to Article 10cb and for the

Industrial Decarbonisation Bank pursuant to Article 10cc of this Directive shall be used in

line with the principle of ‘do no significant harm’ referred to in Article 33(2), point (d) of

Regulation of Regulation (EU, Euratom) 2024/2509.’

(21) in the title of Chapter IV, the word ‘stationary’ is deleted;

(22) Article 12 is amended as follows:

(a) paragraph 3 is amended as follows:

(i) point (b) is replaced by the following:

‘(b) each aircraft operator surrenders a number of allowances that is equal to its

total emissions during the preceding calendar year, as verified in accordance

with Article 15, reduced as set out in paragraph 3-f to deduct costs incurred

from CORSIA offsetting, and thereby avoid double charging.’;

(ii) the following paragraphs are inserted after paragraph 3:

‘3-g. By way of derogation from paragraph 3, first subparagraph, point (c),

shipping companies may surrender fewer allowances than their verified

emissions in respect of emissions released until 31 December 2035 from

voyages from a port of call outside the jurisdiction of a Member State to a port

of call under the jurisdiction of a Member State if performed by containerships

of 10 000 TEU and above, if the distance of the voyage exceeds 300 nautical

miles.

Where the shipping companies benefit from the derogation referred to in the

first subparagraph, they may surrender fewer allowances than their verified

emissions in respect of emissions released from the activities within a port in

relation to the voyages referred to in the first subparagraph.

The amount of allowances to be surrendered in respect of the containership

referred to in the first subparagraph at the port of call under the jurisdiction of a

Member State, shall be reduced on the basis of the share of containers,

measured in twenty-foot equivalent units, unloaded at the port of call under the

jurisdiction of a Member State for the sole purpose of being loaded onto

another ship, performing a voyage between the same port of call and a port of

call outside the jurisdiction of a Member State, compared to the total number

of containers unloaded by the containership.

Where fewer allowances are surrendered compared to the verified emissions,

once the difference between verified emissions and allowances surrendered has

been established in respect of each year, an amount of allowances

corresponding to that difference shall be cancelled rather than auctioned

pursuant to Article 10.

3-f. On routes subject to the offsetting requirement calculated pursuant to

paragraph 6 of this Article, the reduction of the surrender obligation shall

correspond to the aircraft operator’s offsetting requirement, as calculated

pursuant to paragraph 6 of this Article, in proportion to the extent the route is

covered by the surrender obligation, multiplied by the ratio between the

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average price of allowances and the average price of credits eligible under

Article 11a. The ratio shall be calculated using best available price indices for

credits published in the carbon market report published pursuant to Article

10(5).

In case the cancelation of units pursuant to paragraph 9 does not take place for

a certain period described in that paragraph, allowances shall be surrendered

for the deductions that took already place for the years in that period, no later

than 30 September of the year following the date of the notification of the final

offsetting obligation.

In case the final offsetting requirement pursuant to paragraph 6 is not

communicated to aircraft operators and the cancelation of units pursuant to

paragraph 9 does not take place for a certain period described in that paragraph,

allowances shall be surrendered for the deductions that took already place for

the years in that period, no later than 30 September of the year following the

due date of the notification of the final offsetting obligation.’;

(b) in paragraphs 3-e, 3-d, 3-c, and 3-b, the date of ‘31 December 2030’ is replaced

by ‘31 December 2035’;

(c) paragraph 3a is replaced by the following:

‘3a. An obligation to surrender allowances shall not arise in respect of

emissions verified as captured and transported for permanent storage to a

facility for which a permit is in force in accordance with Directive 2009/31/EC

of the European Parliament and of the Council *, or on a reciprocal basis from

2031 to a facility with a valid permit for geological storage in a third country

with a greenhouse gas emissions trading system which is linked to the EU ETS

pursuant to Article 25 of this Directive and in respect of which the Commission

adopts an implementing decision confirming sufficient safeguards with respect

to the rules set out in Directive 2009/31/EC are in place and provided the

facility is not used for enhanced oil or gas recovery.

_______

* Directive 2009/31/EC of the European Parliament and of the Council of 23

April 2009 on the geological storage of carbon dioxide and amending Council

Directive 85/337/EEC, European Parliament and Council Directives

2000/60/EC, 2001/80/EC, 2004/35/EC, 2006/12/EC, 2008/1/EC and

Regulation (EC) No 1013/2006 (OJ L 140, 5.6.2009, p. 114).’

(d) paragraph 3b is replaced by the following:

‘3b. An obligation to surrender allowances shall not arise in respect of carbon

dioxide emissions which are considered to have been captured and utilised in

such a way that they have become:

(a) permanently chemically bound so that they do not enter the atmosphere

under normal use, including any normal activity taking place after the

end of the life of the product, or

(b) chemically bound so that they will be primarily emitted in activities listed

in Annex I and subject to a surrender obligation under Article 12(3).

The Commission shall adopt delegated acts in accordance with Article 23 to

supplement this Directive concerning the requirements for considering that

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greenhouse gases have become permanently chemically bound or chemically

bound as referred to in the first subparagraph of this paragraph, and list the

types of utilisation that are considered to meet or not to meet these

requirements. Those delegated acts may determine de minimis thresholds for

the risk of not meeting those requirements and may introduce measures, such

as partial surrender requirements, to address carbon leakage risks when these

thresholds are exceeded.’

(e) paragraph (9) is replaced by the following:

‘9. Aircraft operators that hold an air operator certificate issued by a Member

State or are registered in a Member State, including in the outermost regions,

dependencies and territories of that Member State, shall cancel units referred to

in Article 11a only in respect of the quantity notified by that Member State, in

accordance with paragraph 6, in respect of the relevant CORSIA compliance

period. The cancellation shall take place by 31 January 2025 for emissions in

the period 2021 to 2023, by 31 January 2028 for emissions in the period 2024

to 2026, by 31 January 2031 for emissions in the period 2027 to 2029, by 31

January 2034 for emissions in the period 2030 to 2032 and by 31 January 2037

for emissions in the period 2033 to 2035.’;

(23) the following articles are inserted:

‘Article 12a

Phase-in of requirements for waste incineration and waste co-incineration

Waste incineration and waste co-incineration installations that become subject to the system

from 2031 shall be liable to surrender allowances according to the following schedule: 

(a) 25% of verified emissions reported for 2031 that would be subject to surrender

requirements in accordance with Article 12;

(b) 50% of verified emissions reported for 2032 that would be subject to surrender

requirements in accordance with Article 12;

(c) 75 % of verified emissions reported for 2033 that would be subject to surrender

requirements in accordance with Article 12;

(d) 100% of verified emissions reported for 2034 and each year thereafter in

accordance with Article 12.

By way of derogation from the first paragraph of this Article, Member States may exempt

waste incineration and waste co-incineration installations located in outermost regions within

the meaning of Article 349 TFEU from the obligation to surrender allowances until 31

December 2035.

Article 12b

Opt-out for waste incineration and co-incineration

1. By way of derogation from Articles 12 and 12a, the competent authority of a Member

State may exempt installations under the activity ‘Waste incineration and waste co-

incineration’ referred to in Annex I, from the obligation to surrender allowances for the

emissions of a given reference year up to 2035, provided that the Member State demonstrates

that at least two out of the following three conditions are met:

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(a) The Member State concerned has a national carbon tax in force for the

emissions of the years 2031 to 2035, covering the activity referred to in in

Annex I; the national law setting the tax rates applicable for the years 2031 to

2035 has, by the date of notification in accordance with 31July 2029, entered

into force; for the reference year, the national carbon tax of the Member State

concerned effectively paid by that regulated entity is higher than the average

auction clearing price of the emissions trading system established under this

Chapter, adjusted for the gradual phase-in for the sector in accordance with

Article 12a; the Member State concerned shall notify the Commission of any

subsequent change to the national carbon tax;

(b) The Member State concerned has the policies in place to achieve the targets

under Article 11(2)(d) and (e) of Directive 2008/98/EC and is on track to meet

those targets;

(c) The Member State concerned has the policies in place to achieve the target

under Article 5(5) of Directive 1999/31/EC and is on track to meet that target.

2. The Member State concerned shall cancel an amount of allowances from the total

quantity of allowances to be auctioned by it, referred to in Article 10, for each reference year,

which is equal to the verified emissions of the relevant installations for the reference year.

The allowances shall be cancelled in accordance with the delegated acts adopted pursuant to

Article 10(4).

3. By 31 July 2029, the Member State concerned shall notify the Commission of its

request for the opt-out, demonstrating compliance with at least two out of the three conditions

in paragraph 1, and indicating the corresponding amount of allowances to be cancelled in

accordance with paragraph 2.

4. The derogation shall enter into force if the Commission does not raise an objection to

the application of the derogation on the ground that the measure notified is not in conformity

with the conditions set out in this paragraph, within three months of a notification under this

paragraph.

5. The amount of allowances to be cancelled under paragraph 2 shall not affect, where it

has been established pursuant to Article 311, third paragraph, TFEU, the own resources of the

Union budget pursuant to Council Decision (EU, Euratom) 2020/2053 from the revenues

generated from auctioning of allowances in accordance with Article 10 of this Directive.

6. The installations concerned shall continue to fully comply with the obligations under

Article 14 on monitoring and reporting of its emissions and Article 15 on verification and

accreditation.’

(24) Article 14 is amended as follows:

(a) in paragraph 1, the first subparagraph is replaced by the following:

‘The Commission is empowered to adopt implementing acts concerning the

detailed arrangements for the monitoring and reporting of emissions and,

where relevant, activity data, from the activities listed in Annex I to this

Directive, and non-CO2 aviation effects on routes for which emissions are

reported under this Directive, which shall be based on the principles for

monitoring and reporting set out in Annex IV to this Directive and the

requirements set out in paragraphs 2 and 5 of this Article. Those implementing

acts shall also specify the global warming potential of each greenhouse gas and

take into account up-to-date scientific knowledge on the effects of non-CO2

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aviation emissions in the requirements for monitoring and reporting of

emissions and their effects, including non-CO2 aviation effects. Such

implementing acts shall provide for the application of the sustainability and

greenhouse gas emission-saving criteria for the use of biomass established by

Directive (EU) 2018/2001, with any necessary adjustments for application

under this Directive, in order for such biomass to be zero-rated. They shall

specify the order of capture and how to account the emissions from captured

CO2 from a mix of zero-rated and non-zero-rated sources. They shall also

specify how to account for emissions from synthetic fuels, ensuring that such

emissions are accounted for and that double counting is avoided. Carbon

chemically bound in synthetic fuels shall be considered to be emitted by the

activity of distribution of synthetic fuels established in Annex I.’

(b) the following paragraph is inserted:

‘1a. The acts referred to in paragraph 1 shall provide for the possibility for

operators, aircraft operators and shipping companies to compensate their fossil

emissions with domestic permanent carbon removal units generated from the

storage of their biogenic emissions under the scope of this Directive and

certified under Regulation (EU) 2024/3012, while avoiding the double

counting of those negative emissions.’

(25) Article 19 is amended as follows:

(a) in paragraph 1, the second subparagraph is deleted;

(b) the following paragraph is inserted after paragraph 1:

‘1a. In the period until 2040, the Commission shall use up to a maximum of 5

million allowances from the Union-wide quantity of allowances referred to in

Article 9 to cover expenses linked with the functioning and management of the

EU ETS, including the financing of the operation of the Union Registry.

These allowances shall be auctioned in accordance with Article 10(4) of this

Directive, with proceeds constituting external assigned revenue under Article

21(5) of Regulation (EU, Euratom) 2024/2509.

In the event that the allowances set aside under the first subparagraph of this

paragraph are not auctioned for the purposes established in the first

subparagraph of this paragraph before 2041, they shall be used to increase the

amount available for new entrants pursuant to Article 10a(7).

The acts referred to in paragraph 3 of this Article shall specify the conditions,

modalities and procedures under which the Central Administrator designated

by the Commission pursuant to Article 20(1) shall make use of revenues from

the auctioning of allowances pursuant to this paragraph.’;

(26) Article 20 is amended as follows:

(a) paragraph 1 is replaced by the following:

‘1. The Commission shall designate a Central Administrator to maintain a

Union registry recording the issue, transfer and cancellation of allowances.’;

(b) paragraph 2 is replaced by the following:

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‘2. The Central Administrator shall conduct automated checks on each

transaction in the Union registry to ensure there are no irregularities in the

issue, transfer and cancellation of allowances.’;

(c) paragraph 3 is deleted;

(27) Article 21 is amended as follows:

(a) paragraph 1 is replaced by the following:

‘1. Each year the Member States shall submit to the Commission a report on

the application of this Directive. That report shall pay particular attention to the

arrangements for the allocation of allowances, the operation of registries, the

application of the implementing measures on monitoring and reporting,

verification and accreditation and issues relating to compliance with this

Directive and on the fiscal treatment of allowances, if any. The first report shall

be sent to the Commission by 30 June for every reporting year. The report shall

be drawn up on the basis of a questionnaire or outline adopted by the

Commission in the form of implementing acts. Such implementing acts shall be

adopted in accordance with the examination procedure referred to in Article

22a(2). The questionnaire or outline shall be made available to Member States

at least six months before the deadline for the submission of the first report and

as early as possible before the deadline for the submission of each annual

report thereafter, following a consultation process on a revised questionnaire

with Member States where applicable.’;

(b) paragraph 2 is deleted;

(c) paragraph 3 is replaced by the following:

‘3. The Commission shall organise an exchange of information between the

competent authorities of the Member States concerning developments relating

to issues of allocation, the operation of registries, monitoring, reporting,

verification, accreditation, information technology, and compliance with this

Directive.’;

(d) paragraph 4 is replaced by the following:

‘4. Every three years, the report referred to in paragraph 1 shall also pay

particular attention to the equivalent measures adopted for small installations

excluded from the EU ETS. The issue of equivalent measures adopted for

small installations shall also be considered in the exchange of information

referred to in paragraph 2.’;

(28) Article 23 is amended as follows:

(a) paragraph 2 is replaced by the following:

‘2. The power to adopt delegated acts referred to in Article 3c(6), Article 3d(3),

Article 3gaa, Article 3gab, Article 9c, Article 10(4), Article 10a(1), (8) and

(8a), Article 10a(3e), Article 10b(5), Article 10cb(9), Article 10cc(6), Article

10cd(7), Article 10ce(9), Article 12(3b), Article 19(3), Article 22, Article

24(3), Article 24a(1), Article 25a(1), 25b(6) 25b(7), Article 28c and Article

30j(1) shall be conferred on the Commission for an indeterminate period of

time from 8 April 2018.’

(b) paragraph 3 is replaced by the following:

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‘3. The delegation of power referred to paragraph 2 may be revoked at any

time by the European Parliament or by the Council. A decision to revoke shall

put an end to the delegation of the power specified in that decision. It shall take

effect the day following the publication of the decision in the Official Journal

of the European Union or at a later date specified therein. It shall not affect the

validity of any delegated acts already in force.’

(c) paragraph 6 is replaced by the following:

‘6. A delegated act adopted pursuant to the articles referred to in paragraph 2

shall enter into force only if no objection has been expressed either by the

European Parliament or by the Council within a period of two months of

notification of that act to the European Parliament and to the Council or if,

before the expiry of that period, the European Parliament and the Council have

both informed the Commission that they will not object. That period shall be

extended by two months at the initiative of the European Parliament or of the

Council.’

(29) Article 25a is amended as follows:

(a) paragraph 4 is replaced by the following:

‘4. In respect of emissions released until 31 December 2035 from flights to or

from States that are listed in the implementing act adopted pursuant to

paragraph 3 of this Article, aircraft operators shall not be required to surrender

allowances in accordance with Article 12(3) in respect of those emissions.’;

(b) paragraph 8 is replaced by the following:

‘8. Where aircraft operators that hold an air operator certificate issued by a

Member State or are registered in a Member State, including in the outermost

regions, dependencies and territories of that Member State, operate flights

between a Member State and a State listed in the implementing act adopted

pursuant to paragraph 3 of this Article, or a flight between two different States

listed in that implementing act, including flights that take place between

Switzerland, the United Kingdom and States listed in the implementing act

adopted pursuant to paragraph 3 of this Article, and those States allow aircraft

operators to use units other than those on the list adopted pursuant to Article

11a(8) and that could lead to a significant distortion of competition, the

Commission shall be empowered to adopt implementing acts, on the request of

a Member State, allowing those aircraft operators to use unit types additional to

those on the list or not to be bound by the conditions of Article 11a(2) and (3)

in respect of emissions from such flights. Those implementing acts shall be

adopted in accordance with the examination procedure referred to in Article

22a(2).’;

(30) the following Article 25b is inserted:

‘Article 25b

ETS as a service

1. Administrative and technical support and coordination may be provided for third

countries to facilitate greenhouse gas emissions pricing (‘ETS as a service’), in particular in

respect of emissions released from the following activities:

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(a) aviation as set out in Annex I in respect of the emissions from flights between

the EEA and the third country;

(b) maritime transport as set out in Annex I in respect of the remaining fifty

percent (50%) of the emissions released during voyages between a port of call

under the jurisdiction of a Member State and a port of call under the

jurisdiction of the third country that fall outside the scope laid down in Article

3ga.

Such support shall be provided in respect of emissions from aviation from reporting year 2027

at the earliest, and in respect of emissions from maritime transport from reporting year 2029

at the earliest.

2. Where aviation or maritime emissions are priced pursuant to paragraph 1 of this

Article, with an absolute emissions cap, the third country shall benefit from revenues to tackle

climate change as follows:

(a) for aviation, for fifty percent (50%) of the aviation activity between the EEA

and the third country;

(b) for maritime, for the remaining fifty percent (50%) of the emissions released

during voyages between a port of call under the jurisdiction of a Member State

and a port of call under the jurisdiction of the third country that fall outside of

the scope laid down in Article 3ga.

In the absence of national auctioning of allowances, these allowances shall be auctioned by

the Union on the common auction platform appointed pursuant to the delegated act adopted in

accordance with Article 10(4) of this Directive and in accordance with the principles and

modalities referred to in Article 10(4) of this Directive, with proceeds constituting external

assigned revenue under Article 21(5) of Regulation (EU, Euratom) 2024/2509. The

corresponding revenues generated from the auctioning of these allowances shall be transferred

to the third country.

3. Where allowances are auctioned by the Union in accordance with paragraph 2 of this

Article, the Union-wide quantity of allowances referred to in Article 9 shall be increased to

take into account the coverage of emissions from aviation and maritime transport referred to

in this Article, first paragraph, based on their emissions for the most recent year for which

data are available. The linear reduction factor shall also apply to these allowances.

4. In advance of national administration procedures being in place in the relevant third

countries, Member States which administer relevant aircraft operators and shipping

companies shall undertake administrative functions in their regard. Optimum interaction shall

be ensured for the administration of aircraft operators and shipping companies and for

ensuring effective enforcement.

5. The Commission, assisted by EMSA, shall endeavour to make available the tools and

guidance referred to in Article 18b(2).

6. The Commission is empowered to adopt delegated acts in accordance with Article 23

to amend Article 3ga(1) concerning the coverage of the remaining emissions released during

voyages between ports of call under the jurisdiction of a Member State and the ports of call of

a third country to which support is provided in accordance with this Article.

7. The Commission is empowered to adopt delegated acts in accordance with Article 23

to supplement this Article with rules on the operation of ETS as a service, to ensure

implementation of ETS as a service in accordance with this Article.’;

EN 102 EN

(31) Article 28a is amended as follows:

(a) paragraph 1 is amended as follows:

(i) point (a) is replaced by the following:

‘(a) all emissions from flights departing from an aerodrome located in an

outermost region of a Member State or in dependencies and territories to

States outside the EEA, with the exception of flights to aerodromes

located in the United Kingdom or Switzerland and to and from Gibraltar,

in each calendar year from 1 January 2029 to 31 December 2032, subject

to the review referred to in Article 28b, except for aircraft operators

operating flights between two different States with total annual emissions

lower than 10 000 tonnes per year calculated in accordance with Annex

I;’;

(ii) the following points are is added after point (b):

’(c) all emissions from flights to and from least developed countries and

small island developing States as defined by the United Nations listed in

the implementing act adopted pursuant to Article 25a(3), other than those

States whose GDP per capita equals or exceeds the Union average;

(d) all emissions from flights to and from aerodromes located in States

outside the EEA, with the exception of flights to aerodromes located in

the United Kingdom or Switzerland and to and from Gibraltar, in each

calendar year from 1 January 2027 to 31 December 2028, except for

aircraft operators operating flights between two different States with total

annual emissions lower than 10 000 tonnes calculated in accordance with

Annex I, for whom in each calendar year from 1 January 2027 to 31

December [2027/ the year before the entry into force of this Directive];

(e) all emissions from flights to aerodromes that are more than 5 000 km

from the aerodrome of Frankfurt and located in States outside the EEA in

each calendar year from 1 January 2029 to 31 December 2032, except for

aircraft operators operating flights between two different States with total

annual emissions lower than 10 000 tonnes calculated in accordance with

Annex I. This point shall also apply in respect of aerodromes that are less

than 5 000 km from the aerodrome of Frankfurt, are located in States

outside the EEA and have less than 15 000 tonnes annual emissions from

flights from the EEA to them.’;

(iii) the following subparagraph is added:

‘From 1 January 2027, the total quantity of allowances to be allocated in

respect of aircraft operators as laid down in Article 3c(5) shall be

increased annually whenever an extension of the coverage of flights

subject to requirements pursuant to Article 12(3) takes place by the

number of allowances equal to the emissions from such flights two years

before such extension becomes effective, and from the subsequent year

shall be subject to the application of the linear factor referred to in Article

9. That amount should be reduced by the amount equal to the total

reductions of the surrender obligations pursuant to Article 12(3), point

(b) resulting from an offsetting obligation pursuant to Article 12(6).’;

(b) paragraph 2 is replaced by the following:

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‘2. By way of derogation from Article 3d(3), the quantity of allowances to be

auctioned by each Member State in respect of the period from 1 January 2027

to 31 December 2032 shall be reduced to correspond to its share of attributed

aviation emissions from flights which are not subject to the derogations

provided for in Article 3c(8) and in paragraph 1, points (a) to (e) of this

Article.’;

(c) paragraph 4 is replaced by the following:

‘4. By way of derogation from Articles 3g, 12, 15 and 18a of this Directive,

where an aircraft operator has total annual emissions lower than 25 000 tonnes

of CO2, calculated in accordance with ‘Aviation’, point (j), of Annex I to this

Directive, or where an aircraft operator has total annual emissions lower than

10 000 tonnes of CO2 subject to surrender obligation pursuant to Article 12(3)

of this Directive, point (b), not taking into account emissions for which the

surrender obligation is considered to be satisfied under Article 3c(8) or Article

28a(1) of this Directive, its emissions shall be considered to be verified

emissions if determined by using the small emitters tool approved under

Commission Regulation (EU) No 606/2010 * and populated by Eurocontrol

with data from its ETS support facility. Member States may implement

simplified procedures for non-commercial aircraft operators as long as such

procedures provide no less accuracy than the small emitters tool provides.

_____________

* Commission Regulation (EU) No 606/2010 of 9 July 2010 on the approval of

a simplified tool developed by the European organisation for air safety

navigation (Eurocontrol) to estimate the fuel consumption of certain small

emitting aircraft operators (OJ L 175, 10.7.2010, p. 25 ELI:

http://data.europa.eu/eli/reg/2010/606/oj.)’;

(d) the following paragraph is added:

‘6. In addition to the amount reserved for the use of eligible aviation fuels and

electricity pursuant to Article 3c(6), taking into account the provisional

restriction of the geographical scope pursuant to Article 28a(1), point (d), a

further maximum 110 million allowances of the allowances referred to in third

subparagraph of paragraph 1 shall be reserved for the purposes laid down in

Article 3c(6) until 31 December 2040.

From 1 January 2029, the amount shall be available for all flights departing

from an aerodrome loacted in the EEA, with the restrictions for business flights

pursuant to Article 3c(6). From this date, the two last sentences of Article

3c(6), first subparagraph, shall not apply for the allocation of allowances

pursuant to that Article.’;

(32) In Article 28b, the following paragraph is added:

‘(4) By 1 July 2032, the Commission shall submit to the European Parliament and to

the Council a report in which it shall assess the environmental integrity of ICAO’s

global market-based measure, including its general ambition in relation to targets

under the Paris Agreement, the level of participation in offsetting under CORSIA, its

enforceability, transparency, the penalties for non-compliance, the processes for

public input, the quality of offset credits, monitoring, reporting and verification of

emissions, registries, accountability as well as rules on the use of biofuels, with

EN 104 EN

special regard to the developments happened since 2027. The Commission shall also

publish that report by 1 July 2032.

The Commission’s report shall be accompanied by a legislative proposal, where

appropriate, to amend this Directive in a way that is consistent with the Paris

Agreement temperature goal, the Union’s economy-wide greenhouse gas emission

reduction commitment for 2040 and the objective of achieving climate neutrality by

2050 at the latest, and with the aim of preserving the environmental integrity and

effectiveness of the Union’s climate action. An accompanying proposal shall, as

appropriate, restrict the application of the EU ETS to flights between two aerodromes

located in States in the EEA, to aerodromes located in Switzerland and the UK and to

and from Gibraltar where the report shows that:

(a) CORSIA has been strengthened in line with achieving its long-term

global aspirational goal, towards meeting the Paris Agreement goals; and

(b) States listed in the implementing act adopted pursuant to Article 25a(3)

represent more than 70% of international aviation emissions using the

most recent available data.’;

(33) in Article 30 is amended as follows;

(a) in paragraph 7, first subparagraph, the sole footnote is deleted;

(b) the following paragraph is added:

‘9. By 31 December 2034, the Commission shall present a report to the

European Parliament and to the Council in which it shall assess

the appropriateness of including in the EU ETS emissions from landfills. In that

regard, the Commission shall take into account any potential evidence of

diversion of waste towards disposal by landfilling. The Commission may,

where appropriate, accompany that report with a legislative proposal to include

landfills in the EU ETS.’; 

(34) in Article 30m, paragraph 3 is replaced by the following:

‘Member States shall ensure the visibility of the source of the funding of actions or

projects funded from the EU ETS auctioning revenues of which they determine the

use in accordance with Article 3d(4), Article 10(3) and Article 30d(6), corresponding

to what is referred to in paragraph 1, points (a) and (b), of this Article.’;

(35) Annexes I to V are amended as set out in the Annexes to this Directive;

Article 2

Amendments to Decision (EU) 2015/1814

Article 1 of Decision (EU) 2015/1814 is amended as follows:

(1) in paragraph 4a, the first subparagraph is replaced by the following:

‘As from 2024, the calculation of the total number of allowances in circulation in any

given year shall include the cumulative number of allowances issued in respect of

aviation and the cumulative tonnes of verified emissions from aviation under the EU

ETS, excluding emissions from flights on routes covered by offsetting calculated

pursuant to Article 12(6) of Directive 2003/87/EC, between 1 January 2024 and 31

December of that same given year. That calculation shall also cover the cumulative

number of allowances issued in respect of aviation and the cumulative tonnes of

EN 105 EN

verified emissions from aviation under the EU ETS, excluding emissions from flights

on routes covered by offsetting calculated pursuant to Article 12(6) of Directive

2003/87/EC, over the period between 1 January 2012 and 31 December 2023’;

(2) in paragraph 5, the first subparagraph is replaced by the following:

‘In any given year, if the total number of allowances in circulation is between 833

million and 947 million, a number of allowances equal to the difference between the

total number of allowances in circulation, as set out in the most recent publication as

referred to in paragraph 4 of this Article, and 833 million shall be deducted from the

quantity of allowances to be auctioned by the Member States under Article 10(2) of

Directive 2003/87/EC and shall be placed in the reserve over a period of 12 months

beginning on 1 September of that year. If the total number of allowances in

circulation is above 947 million allowances, the number of allowances to be

deducted from the quantity of allowances to be auctioned by the Member States

under Article 10(2) of Directive 2003/87/EC and to be placed in the reserve over a

period of 12 months beginning on 1 September of that year shall be equal to 12 % of

the total number of allowances in circulation. From 2029, the thresholds of 833 and

947 million under this paragraph shall decrease annually by 4%, rounded to the

nearest million, as specified in the Annex’.

(3) paragraph 6 is replaced by the following:

‘6. In any year, if the total number of allowances in circulation is between 300

million and 400 million, a number of allowances equal to the difference between 400

million and the total number of allowances in circulation shall be released from the

reserve. If the total number of allowances in circulation is less than 300 million, an

amount of 100 million allowances shall be released from the reserve.

From 2029, the thresholds of 400 million and of 300 million and the amount of 100

million allowances to be released from the reserve, set out in the previous

subparagraph, shall decrease annually by 4 %, rounded to the nearest million, as

specified in the Annex.

Where fewer allowances are in the reserve than must be released in accordance with

this paragraph, the release shall be equal to the allowances that remain in the reserve.

The amount of allowances released from the reserve under this paragraph shall be

added to the volume of allowances to be auctioned by the Member States under

Article 10(2) of Directive 2003/87/EC.’

Article 3

Transposition

1. Member States shall adopt and publish, by 31 December 2028 at the latest, the laws,

regulations and administrative provisions necessary to comply with this Directive. They shall

forthwith communicate to the Commission the text of those provisions.

They shall apply those provisions from 1 January 2029.

However, Member States shall apply those provisions necessary to comply with the following

provisions from the following dates

(a) from 1 January 2031:

(i) Article 1, point (5), [as regards the new second paragraph of Article

3ga(1) of Directive 2003/87/EC] [N.B.: date of application may need to

EN 106 EN

be changed to ensure it starts 2 years after MRV Maritime application

in 2029];

(ii) Annex I, point 1(c)(iii) to (v) regarding the amendments to the activities

on capture of carbon dioxide, transport of carbon dioxide, utilisation of

carbon dioxide, processing of carbon dioxide and distribution of

synthetic fuels in rows twenty-six, twenty-seven, and the rows inserted

after the twenty-eight row in Annex I to Directive 2003/87/EC;

(a) from 1 January 2029: Annex I, point (1)(c)(vi), as regards the entry ‘Maritime

transport’ in the table in Annex I to Directive 2003/87/EC;

(b) from 30 September 2029: Article 1, point (17)(d), regarding Article 10a(3b),

Article 10a(3c), Article 10a(3d) of Directive 2003/87/EC as regards the five-

year period for free allocation starting in 2031.

(c) from [date of application of MRV provisions related to offshore]: Article 1,

point (3)(e), as regards Article 3, point (z) ‘port of call’ of Directive

2003/87/EC.

When Member States adopt those provisions, they shall contain a reference to this Directive

or be accompanied by such a reference on the occasion of their official publication. Member

States shall determine how such reference is to be made.

2. By way of derogation from paragraph 1, Member States shall adopt and publish, by 31

December 2027 at the latest, the laws, regulations and administrative provisions necessary to

comply with Article 1, points (3)(b), (12) and (17)(e) of this Directive regarding the

amendment to Article 3(h) and the introduction of Article 6(4) and Article 10a(3f) of

Directive 2003/87/EC. They shall apply those measures from 1 January 2028.

When Member States adopt those provisions, they shall contain a reference to this Directive

or be accompanied by such a reference on the occasion of their official publication. Member

States shall determine how such reference is to be made.

Member States shall communicate to the Commission the text of the main measures of

national law which they adopt in the field covered by this Directive.

Article 4

Transitional provisions

The list contained in the Annex to Delegated Decision (EU) 2019/708 shall continue to apply

until 31 December 2040.

Article 5

Entry into force and application

1. This Directive shall enter into force on the twentieth day following that of its

publication in the Official Journal of the European Union.

2. The following articles shall apply from 30 September 2027:

(a) Article 1(15)(b)(i), and (ii) regarding the amendments to Article 10a(1a) of

Directive 2003/87/EC;

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(b) Article 1(15)(g) and (i) regarding the amendments to Article 10a(5b) and

10a(7) of Directive 2003/87/EC;

(c) Article 1(17) regarding the introduction of Articles 10cc, 10cd and 10ce of

Directive 2003/87/EC;

(d) Article 1(25)(b) regarding the amendments inserting paragraph 1a in Article 19

of Directive 2003/87/EC;

(e) Article 1(15)(c)(i) regarding the amendment inserting a new suparagraph after

Article 10a(2), second subparagraph;

3. The following articles shall apply from 1 January 2029:

(a) Article 1(14)(c) regarding the amendments to Article 10(3);

(b) Article 1(15)(c)(ii) regarding the introduction of points (f) to (i) in the third

subparagraph of Article 10a(2) of Directive 2003/87/EC;

4. Article 1(15)(b)(iii) regarding the use of the allowances resulting from the reduction of

free allocation, Article 1(15)(f) regarding the replacement of Article 10a(5a), Article 1(15)(j)

regarding the deletion of Article 10a(8) and 10a(8a) of Directive 2003/87/EC, Article 1(17)

regarding the insertion of Article 10cb of Directive 2003/87/EC, Article 1(18) regarding the

amendments to Article 10d of Directive 2003/87/EC, Article 1(20) regarding the amendments

to Article 10f of Directive 2003/87/EC, and Article 1(35) regarding the amendments to Annex

IIb of Directive 2003/87/EC, shall apply from 1 January 2031.

The Commission shall ensure that:

(c) ongoing projects approved or selected for funding under Article 10a(8) before

1 January 2031 remain eligible for disbursement in accordance with the rules in

force at the time of approval;

(d) unallocated funds as of 31 December 2030 are transferred to Article 10cc.

Article 6

Addressees

This Directive is addressed to the Member States.

Done at Brussels,

For the European Parliament For the Council

The President The President

EN 1 EN

LEGISLATIVE FINANCIAL AND DIGITAL STATEMENT

1. FRAMEWORK OF THE PROPOSAL/INITIATIVE ................................................. 3

1.1. Title of the proposal/initiative ...................................................................................... 3

1.2. Policy area(s) concerned .............................................................................................. 3

1.3. Objective(s) .................................................................................................................. 3

1.3.1. General objective(s) ..................................................................................................... 3

1.3.2. Specific objective(s) ..................................................................................................... 3

1.3.3. Expected result(s) and impact ...................................................................................... 3

1.3.4. Indicators of performance ............................................................................................ 3

1.4. The proposal/initiative relates to: ................................................................................. 4

1.5. Grounds for the proposal/initiative .............................................................................. 4

1.5.1. Requirement(s) to be met in the short or long term including a detailed timeline for

roll-out of the implementation of the initiative ............................................................ 4

1.5.2. Added value of EU involvement (it may result from different factors, e.g.

coordination gains, legal certainty, greater effectiveness or complementarities). For

the purposes of this section 'added value of EU involvement' is the value resulting

from EU action, that is additional to the value that would have been otherwise

created by Member States alone. ................................................................................. 4

1.5.3. Lessons learned from similar experiences in the past .................................................. 4

1.5.4. Compatibility with the multiannual financial framework and possible synergies with

other appropriate instruments ....................................................................................... 5

1.5.5. Assessment of the different available financing options, including scope for

redeployment ................................................................................................................ 5

1.6. Duration of the proposal/initiative and of its financial impact .................................... 6

1.7. Method(s) of budget implementation planned ............................................................. 6

2. MANAGEMENT MEASURES................................................................................... 8

2.1. Monitoring and reporting rules .................................................................................... 8

2.2. Management and control system(s) ............................................................................. 8

2.2.1. Justification of the budget implementation method(s), the funding implementation

mechanism(s), the payment modalities and the control strategy proposed .................. 8

2.2.2. Information concerning the risks identified and the internal control system(s) set up

to mitigate them............................................................................................................ 8

2.2.3. Estimation and justification of the cost-effectiveness of the controls (ratio between

the control costs and the value of the related funds managed), and assessment of the

expected levels of risk of error (at payment & at closure) ........................................... 8

2.3. Measures to prevent fraud and irregularities ................................................................ 9

3. ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE ............ 10

3.1. Heading(s) of the multiannual financial framework and expenditure budget line(s)

affected ....................................................................................................................... 10

EN 2 EN

3.2. Estimated financial impact of the proposal on appropriations ................................... 12

3.2.1. Summary of estimated impact on operational appropriations.................................... 12

3.2.1.1. Appropriations from voted budget ............................................................................. 12

3.2.1.2. Appropriations from external assigned revenues ....................................................... 17

3.2.2. Estimated output funded from operational appropriations......................................... 22

3.2.3. Summary of estimated impact on administrative appropriations ............................... 24

3.2.3.1. Appropriations from voted budget .............................................................................. 24

3.2.3.2. Appropriations from external assigned revenues ....................................................... 24

3.2.3.3. Total appropriations ................................................................................................... 24

3.2.4. Estimated requirements of human resources.............................................................. 25

3.2.4.1. Financed from voted budget....................................................................................... 25

3.2.4.2. Financed from external assigned revenues ................................................................ 26

3.2.4.3. Total requirements of human resources ..................................................................... 26

3.2.5. Overview of estimated impact on digital technology-related investments ................ 28

3.2.6. Compatibility with the current multiannual financial framework.............................. 28

3.2.7. Third-party contributions ........................................................................................... 28

3.3. Estimated impact on revenue ..................................................................................... 29

4. DIGITAL DIMENSIONS .......................................................................................... 29

4.1. Requirements of digital relevance .............................................................................. 30

4.2. Data ............................................................................................................................ 30

4.3. Digital solutions ......................................................................................................... 31

4.4. Interoperability assessment ........................................................................................ 31

4.5. Measures to support digital implementation .............................................................. 32

EN 3 EN

1. FRAMEWORK OF THE PROPOSAL/INITIATIVE

1.1. Title of the proposal/initiative

Proposal for a Directive of the European Parliament and of the Council amending

Directive 2003/87/EC, Decision (EU) 2015/1814, Regulation (EU) 2015/757 and

Regulation (EU) 2023/1805, as regards driving competitiveness and cost-effective

decarbonisation.

1.2. Policy area(s) concerned

Climate Action

Heading 2 – Competitiveness, prosperity and security

1.3. Objective(s)

1.3.1. General objective(s)

The objective of this proposal is to ensure that the EU ETS continues to contribute in

the most cost-effective, economically efficient and secure manner to the overall goal

of reaching economy-wide carbon neutrality by 2050 and to the 2040 target, taking

into account the broader policy framework and the need for all sectors to contribute

to the EU climate efforts, while growing our economy and preserving

competitiveness.

1.3.2. Specific objective(s)

• Objective 1.1 Incentivise further emission reductions: to ensure the EU ETS

contributes cost-effectively to economy-wide efforts (including transport) of

achieving emission reductions of the EU in line with climate neutrality and to

contribute cost-effectively to the EU’s fair share of economy-wide emissions

reductions. The following specific objectives have been identified for O1.1:

o Specific Objective 1.1.1 Enable investments in decarbonisation technologies (both

innovative ones and those ready for scale-up/roll-out) that currently do not yet have

the business case (i.e. most of the technologies needed to address the emissions in the

energy intensive industries, and in particular investments in mature decarbonisation

technologies in carbon-intensive, low-income Member States).

o Specific Objective 1.1.2 Ensure full carbon price signal is applied to emissions

sources which are currently not in the scope of the EU ETS but would be well suited

for its coverage, and to sectors where currently the signal is dampened.

o Specific Objective 1.1.3 Address risk of carbon leakage.

• Objective 1.2 Reach a pre-set emissions reduction target provided by the 2040

policy package and with a net emissions calculation: exploring if the EU ETS gross

emissions could be increased without compromising the sectors’ contribution to

economy-wide net emission reductions in line with climate neutrality, including

exploring if the emission reduction efforts could be complemented with carbon

removals. The following specific objectives have been identified for O1.2:

o Specific Objective 1.2.1 Consider how carbon removals can be integrated in the

EU ETS with sufficient environmental safeguards while preserving cost efficiency in

achieving the ETS/EU climate objectives.

o Specific Objective 1.2.2 Adjust EU ETS cap in line with pre-set target.

EN 4 EN

• Objective 1.3 Ensure effective EU climate action on transport emissions.

To ensure effective EU climate action means to ensure that there is a meaningful

carbon price on the EU’s fair share of international transport emissions.

• For aviation, the objective is to ensure a meaningful carbon price on the EU’s fair

share of international aviation emissions, which can be a complement to CORSIA.

• For maritime, the objective is to ensure coherence between any IMO mid-term

measures and the EU ETS while addressing possible risk of significant double

burden when (and if) payments are made due to IMO regulations in relation to

emissions already priced under the EU ETS maritime, in a way that prevents

environmental backsliding.

Thefollowing specific objectives have been identified for O1.3:

o Specific Objective 1.3.1 Ensure effective action on EU’s fair share of aviation

emissions

o Specific Objective 1.3.2 Preserve the effectiveness of the implementation of the

EU ETS extension to maritime.

• Objective 2.1 Ensure efficient market functioning: this means ensuring that, in spite

of a decreasing market, there is sufficient liquidity in the market so as to prevent

trading frictions and excessive price volatility. The following specific objectives

have been identified for O2.1:

o Specific Objective 2.1.1 Increase size of the market.

o Specific Objective 2.1.2 Adjust MSR parameters.

• Objective 2.2 Ensure a secure and compliant operating model for an enhanced

Union Registry and specifically the financing of it.

1.3.3. Expected result(s) and impact

Specify the effects which the proposal/initiative should have on the beneficiaries/groups targeted.

The current ETS legislation was revised in 2023 to deliver a 62% reduction in EU

ETS emissions by 2030 compared to 2005. Since that revision, the EU has adopted a

legally binding target of 90% reduction in net GHG emissions for 2040 compared to

1990 in order to stay on course for reaching climate neutrality by 2050.

The present initiative establishes the contribution of EU ETS to the post-2030

framework. Its main expected impacts are:

- aligning the ambition of the ETS to the 2040 target;

- integrating domestic permanent carbon removals into EU ETS through a public

facility, creating additional emission space for the hardest-to-abate sectors and

supporting the scale-up of the carbon removals industry;

- reforming the Market Stability Reserve to better equip it to deal with scarcity

situations, supporting liquidity of the market;

- extending free allocation and indirect cost compensation beyond the currently

legislated period, while free allocation is progressively made conditional on

submission of climate neutrality plans and implementation of investments;

EN 5 EN

- increasing financial support to innovation and investment for decarbonisation,

including for the industry, so a higher share of EU ETS revenues is returned to

businesses, in particular via the Industrial Decarbonisation Bank.

- continuing the Innovation Fund to support low-carbon innovation and enhance

competitiveness

- strengthening requirements on the of auction revenues going to Member States and

enhance visibility

- continuing to support the modernisation of energy systems in lower income

Member States. Enhancing the Modernisation Fund by updating eligibility criteria

and distribution key, and continuing a redistribution of 10% of auction volume,

ensuring effective carbon pricing of the EU’s fair share of international transport

emissions through an appropriate application of the EU ETS to departing flights,

including avoidance of double-pricing through a deduction mechanism of CORSIA

offsetting costs.

- establishing dedicated direct support for the uptake of EU-produced sustainable

aviation and maritime fuels, clean technology and hydrogen.

- extending the maritime ETS scope to specific categories of small vessels to address

the risk of evasion.

- simplifying measures for maritime monitoring, reporting and verification

- introducing targeted simplification elements to benefit industry and public

authorities by reducing administrative compliance costs and enhancing system

implementation.

- enabling a decarbonisation route for industries with hard-to-abate emissions by

integrating municipal waste incineration into EU ETS and placing the CCU point of

obligation downstream for products and at processor or distributor level for e-fuels.

- securing financial means to establish an enhanced Union Registry that will host

implementation activities and securely manage the financial instruments.

1.3.4. Indicators of performance

Specify the indicators for monitoring progress and achievements.

Indicator nr 1: level of reduction of greenhouse gas emissions in the EU in 2040 90%

reduction target compared to 1990 with a contribution of up to five percentage points

from high-quality international credits, as enshrined in the European Climate Law.

Indicator nr 2: level of reduction of greenhouse gas emissions for the sectors in the

existing EU Emissions Trading System (ETS) in 2040 and level of domestic

permanent carbon removals

The levels of reduction of greenhouse gas emissions in the EU are reported under

Regulation (EU) 2018/1999 and other secondary legislation related to monitoring

and reporting in the ETS.

Indicator nr 3: establishing and managing an enhanced operating model for the

Union Registry

1.4. The proposal/initiative relates to:

a new action

EN 6 EN

a new action following a pilot project / preparatory action77

✓the extension of an existing action

a merger or redirection of one or more actions towards another/a new action

1.5. Grounds for the proposal/initiative

1.5.1. Requirement(s) to be met in the short or long term including a detailed timeline for

roll-out of the implementation of the initiative

Member States shall bring into force the laws, regulations and administrative

provisions necessary to comply with this Directive and the Commission is to develop

the relevant implementing measures.

Further measures to develop relevant implementing measures, starting after the

adoption of the Directive, will include revising and adopting a number of secondary

legislative acts. In particular, this will concern the secondary legislation setting out

detailed rules on changes to the scope of EU ETS and the functioning of the funds,

including Industrial Decarbonisation Bank and ETS investment booster, Innovation

Fund and Modernisation Fund.

1.5.2. Added value of EU involvement (it may result from different factors, e.g.

coordination gains, legal certainty, greater effectiveness or complementarities). For

the purposes of this section 'added value of EU involvement' is the value resulting

from EU action, that is additional to the value that would have been otherwise

created by Member States alone.

Climate change is a trans-boundary problem and both international and EU action

can effectively complement and reinforce regional, national and local action.

Adjusting the ETS to the 2040 target for EU GHG reductions will affect many

sectors across the EU economy and coordinated action at the EU level is therefore

indispensable and has a much bigger chance of leading to the necessary

transformation, acting as a strong driver for cost-effective change and upward

convergence. Furthermore, many of the policy elements assessed in this initiative

have an important internal market dimension, in particular the options related to the

carbon leakage protection and the low-carbon funding mechanisms. EU action can

also inspire and promote the development of other market-based measures.

As a carbon market, the ETS incentivises emission reductions made by cost-effective

solutions first across the activities it covers, achieving greater efficiency by virtue of

its scale. Implementing a similar measure nationally would result in smaller,

fragmented carbon markets, risking distortions of competition and likely lead to

higher overall abatement costs. The same logic holds for the extension of carbon

pricing to new sectors.

1.5.3. Lessons learned from similar experiences in the past

The ETS Directive is an existing EU policy instrument adopted in 2003. The

Commission has gained valuable experience during more than 20 years for which the

EU ETS has been in operation.

This proposal builds upon experience gathered in the previous EU ETS revisions and

initiatives, including the most recent revision concluded in 2023, the adoption of a

legally binding climate target for 2040, the EU Competitiveness Compass, Clean

77 As referred to in Article 58(2), point (a) or (b) of the Financial Regulation.

EN 7 EN

Industrial Deal and AccelerateEU. The initiative also builds on the process based on

integrated national energy and climate plans and the framework contained in the

Governance Regulation.

1.5.4. Compatibility with the multiannual financial framework and possible synergies with

other appropriate instruments

The estimated impact on expenditure and staffing for 2028 and beyond is added for

illustrative purposes only and does not pre-judge the next Multiannual Financial

Framework. The source of financing and scope of Union financial commitment in the

post-2027 period remain subject to the outcome of interinstitutional negotiations on

the MFF 2028-2034 and thereafter shall be determined through the annual budgetary

procedure. All appropriations and staffing allocations as of 2028 are indicative.

This proposal is the first part of a package of measures to deliver the framework to

deliver the new economy-wide 2040 target. The objective of this proposal is to

ensure that the EU ETS continues to contribute in a cost-effective and economically

efficient manner to the overall goal of reaching economy-wide carbon neutrality by

2050 and the 2040 target, taking into account the broader policy framework and the

need for all sectors to contribute to the EU climate efforts, while growing our

economy and preserving competitiveness.

This financial statement sets out how the Commission proposes to meet its resource

requirements using a combination of external assigned revenues and EU funds

(seeking funding from the European Competitiveness Fund for elements currently

financed by the LIFE programme). See Section 3 for further details. The financial

statement takes into account the EU ETS’s contribution to EU Own Resources, as

per the Commission proposal for the next MFF, whereby 30% of auction revenues

pertaining to Member States would be transferred to the Union budget for this

purpose. The proposal limits additional administrative costs by using, where

possible, existing structures used for the Directive.

1.5.5. Assessment of the different available financing options, including scope for

redeployment

The proposal involves making several changes to the scope of emissions (and

removals) covered by the ETS as well as changes to its operation.

It proposes to cover the resource needs from a combination of external assigned

revenues and EU budget funds (specifically the European Competitiveness Fund for

elements currently covered by the LIFE programme).

See Section 3: estimated financial impact of the proposal.

EN 8 EN

1.6. Duration of the proposal/initiative and of its financial impact

limited duration

–  in effect from [DD/MM]YYYY to [DD/MM]YYYY

–  financial impact from YYYY to YYYY for commitment appropriations and

from YYYY to YYYY for payment appropriations.

✓unlimited duration

– Implementation with a start-up period from YYYY to YYYY,

– followed by full-scale operation.

1.7. Method(s) of budget implementation planned

✓Direct management by the Commission

– ✓ by its departments, including by its staff in the Union delegations;

– ✓ by the executive agencies

Shared management with the Member States

✓Indirect management by entrusting budget implementation tasks to:

–  third countries or the bodies they have designated

–  international organisations and their agencies (to be specified)

– ✓ the European Investment Bank and the European Investment Fund

– ✓ bodies referred to in Articles 70 and 71 of the Financial Regulation

–  public law bodies

–  bodies governed by private law with a public service mission to the extent that they

are provided with adequate financial guarantees

–  bodies governed by the private law of a Member State that are entrusted with the

implementation of a public-private partnership and that are provided with adequate financial

guarantees

–  bodies or persons entrusted with the implementation of specific actions in the

common foreign and security policy pursuant to Title V of the Treaty on European Union, and

identified in the relevant basic act

– bodies established in a Member State, governed by the private law of a Member

State or Union law and eligible to be entrusted, in accordance with sector-specific rules, with

the implementation of Union funds or budgetary guarantees, to the extent that such bodies are

controlled by public law bodies or by bodies governed by private law with a public service

mission, and are provided with adequate financial guarantees in the form of joint and several

liability by the controlling bodies or equivalent financial guarantees and which may be, for

each action, limited to the maximum amount of the Union support.

Comments

The management of EU ETS allowances is done through legislation for which the

Commission departments are responsible.

The Innovation Fund is largely implemented by European Climate, Infrastructure and

Environment Executive Agency (CINEA). The proposal foresees additional responsibilities

for CINEA in managing the Industrial Decarbonisation Bank, the facility for purchase of

EN 9 EN

removals, as well as responsibilities for the European Maritime Safety Agency (EMSA) in

implementing the MRV and ETS systems for maritime transport activities.

The Modernisation Fund operates under the responsibility of the beneficiary Member States,

who work in close cooperation with the European Investment Bank (EIB), the Investment

Committee set up for the fund and the European Commission.

EN 10 EN

2. MANAGEMENT MEASURES

2.1. Monitoring and reporting rules

The Commission will continue to monitor and evaluate the functioning of the ETS in

its annual Carbon Market Report, as foreseen under Article 10(5) of the ETS

Directive.

The Carbon Market Report and the overall evaluation of progress on the application

of the ETS Directive is informed by Member State reports under Article 21, which

requires Member States to submit to the Commission an annual report paying

particular attention to issues including the allocation of allowances, operation of the

Registry, application of monitoring and reporting, verification and accreditation and

issues relating to compliance.

Both the Carbon Market Report as well as the Member States’ reports cover also the

impacts of the current revision of the ETS and shall also apply to the sectors to which

emissions trading is extended. The MRV data obtained through the regulation of the

new sectors will be a key source for information for the Commission to evaluate

progress in the sectors concerned.

Finally, the Commission regularly carries out studies on various pertinent aspects of

EU climate policy.

2.2. Management and control system(s)

2.2.1. Justification of the budget implementation method(s), the funding implementation

mechanism(s), the payment modalities and the control strategy proposed

Where applicable, the operational budget implementation mechanisms and payment

modalities will be inspired by the existing arrangements for the Innovation Fund.

The control strategy will apply the set of controls stemming from the Financial

Regulation for direct management

2.2.2. Information concerning the risks identified and the internal control system(s) set up

to mitigate them

The EU ETS is the flagship policy mechanism to achieve the EU’s emission

reductions from around half the economy. Since 2013, the Commission is tasked to

provide a Union Registry, an online database that provides an accurate accounting

for all allowances transaction, a common auctioning platform for the auctioning of

Member States allowances and the relevant support infrastructure for both. The

Union Registry in which allowances are held under the EU ETS is threatened by a

risk of fraudulent cyber-attacks that could result in theft or misappropriation of

allowances leading to significant financial loss (up to several billion euros), legal

litigation and considerable impact on Commission’s reputation and credibility. The

risk is cross-cutting and, alongside DG CLIMA, involves DG DIGIT, HR-DS,

BUDG and LS. Mitigating measures have been put in place. The financial risk would

increase in line with increases in the value of the carbon market. The distribution of

free allowances at a very high total value also requires strict policies on how these

allowances can be distributed, and assurance of respect of the rules in place. This

involves management and control system at the level of the Member States and at the

level of the Commission. Finally, adding new scope to the ETS will increase its

overall breadth and correspondingly the value of the market and associated risk.

EN 11 EN

A High-level Steering Committee involving the lead DG and associated DGs is in

place since 2011. A fully-fledged risk assessment has been conducted in 2014 which

has identified new IT security measures taken as from 2015. As a result of the

recommendations put forward by the IAS in its audit report on the Union Registry

(IT security), measures to further improve the security of the registry system as well

as measures on governance, quality assurance and testing have been implemented.

Additional mitigating actions are being implemented since 2014.

In 2019, a new risk assessment was carried out for the Union Registry. DG CLIMA

drafted a new security plan containing twelve security measures and implemented

those in close collaboration with DIGIT.

Since 2022, yearly risk assessments result in yearly security plans which shall further

strengthen the security of the Union Registry. Nevertheless, the outcome every year

reconfirms that the Registry is exposed to high non-acceptable risk levels resulting in

a reservation in the annual activity report of DG CLIMA.

The implementation is monitored at Senior Management level with regular Steering

Committees between DG CLIMA and DIGIT.

2.2.3. Estimation and justification of the cost-effectiveness of the controls (ratio between

the control costs and the value of the related funds managed), and assessment of the

expected levels of risk of error (at payment & at closure)

This initiative does not bring about new significant controls/risks that would not be

covered be an existing internal control framework. No specific measures beyond the

application of the Financial Regulation have been envisaged.

2.3. Measures to prevent fraud and irregularities

In response to the specific fraud risks for the EU ETS, DG CLIMA reinforced the

Commission-wide guidelines regarding professional ethics and integrity by a

dedicated "Code of Ethics and Conduct in relation to insider trading, fraud and

disclosure of sensitive information", specific trainings, awareness raising initiatives.

It also developed the EU ETS Sensitive Information Classification Policy and the

related handling instructions with 3 levels of sensitivity. The related three ETS

markings are approved by DG HR-DS (as referenced in Security Notice 1 in its

revision 10). In 2019, DG HR-DS published security notice C(2019) 1904 updating

Sensitive Non-Classifed (SNC) information policy. DG CLIMA, in alignment with

this new policy, published new handling instructions for DG CLIMA SNC

information. Appropriate training sessions for newcomers are organised on a regular

basis.

EN 12 EN

3. ESTIMATED FINANCIAL IMPACT OF THE PROPOSAL/INITIATIVE

The estimated impact on expenditure and staffing for 2027 and beyond is added for

illustrative purposes only and does not pre-judge the next Multiannual Financial

Framework. The source of financing and scope of Union financial commitment in the

post-2027 period remain subject to the outcome of interinstitutional negotiations on

the MFF 2028-2034 and thereafter shall be determined through the annual budgetary

procedure. All appropriations and staffing allocations are indicative.

With regards to staff increases unless decided otherwise in the context of the staff

allocation procedure, new tasks are expected to be covered by redeployments within

the lead DG.

In case of any discrepancy, the legal proposal for amendments to the Directive

2003/87/EC, Decision (EU) 2015/1814, Regulation (EU) 2015/757 and Regulation

(EU) 2023/1805 takes precedence over information presented in this section.

Thematic summary of financial impact

Revenues

Own resources

From 2013 to end of 2025, EU ETS auctions have raised over EUR 258 billion in

revenue, with the majority being allocated directly to Member States, and the

remainder distributed through EU-level funds.

Under the Commission proposal on the next Multiannual Financial Framework, the

EU ETS will for the first time make a contribution to EU Own Resources78, calling

for 30% of Member States’ auction revenues to be transferred to the Union budget.

External assigned revenue

Fees: contribution from 3rd country linking: following provisional conclusion of

the agreement linking the EU and UK emissions trading systems, it is foreseen that

the UK will contribute to the aspects of EU ETS functioning.

Auctioning of allowances: the proposal includes amendments concerning the

auctioning of ETS allowances and use of the proceeds as external assigned revenues

for the following purposes:

• Union Registry financing: the proposal includes a provision to enable the

Central Administrator (tasked with maintaining the Union Registry) to finance the

functioning of the registry, and the facility for purchase of international credits

foreseen in Article 9b of the legal proposal.

• Purchase of certified permanent carbon removals, in view of the expected

cost differential between ETS allowances and removals.

• Funding the activities of the Industrial Decarbonisation Bank, Innovation

Fund and Modernisation Fund79, including the investment booster.

• Funding activities aimed at facilitating pricing of greenhouse gas emissions in

the aviation and maritime sectors in third countries.

78 COM(2025)574 final. Proposal for a Council Decision on the system of own resources of the European

Union and repealing Decision (EU, Euratom) 2020/2053. 79 It is proposed for the Modernisation Fund to continue as an off-budget programme.

EN 13 EN

In addition to the resources mentioned above, the proposal will continue to generate

auction revenues for use by Member States, and some allowances will continue to be

allocated to installations for free to address the risk of carbon leakage.

See Section 3.3 of this statement for further detail on revenues

Resource needs

The resource needs related to implementation of this proposal are summarised

thematically below. Further details are contained in the tables in sections 3.1 and 3.2

of this statement.

The Commission foresees making use of executive agencies for implementation of

this proposal. Elements where this is foreseen are labelled p.m. (pro memoria) in the

tables in Section 3.1, in keeping with Commission budgetary rules.

• Union Registry:

o Registry management activity is currently financed from the EU budget. This

proposal seeks to raise external assigned revenue to fund the activity, which is

necessary for the functioning of EU ETS, in particular in the context of an increasing

number of users and the increased coverage of the EU ETS, the growing value of

allowances held in the Union Registry and the increased security challenges. The

enhanced operating model of the Union Registry is expected to employ 100 FTE

staff (including some tasks currently financed through the EU budget).

o Future delegated acts will detail the conditions, modalities and procedures

concerning the use of external assigned revenues generated by auctioning of

allowances intended for Union Registry financing.

• Permanent carbon removals

o Preparation and implementation of a process for purchasing carbon removals,

assessment of possible expansion to new removal types, integration of carbon

removals into relevant systems including common auction platform, Union Registry

and Carbon Removal Certification Framework registry. The administrative processes

can build on the experiences from the Innovation Fund but will be lower due to a

more limited number of technologies.

o Preparation of 2034 communication on progress regarding the purchase of

domestic removals.

• Industrial Decarbonisation Bank (both phase 1 – Investment Booster,

2027-30, and IDB phase 2, 2031-40)

o Establishment of the Industrial Decarbonisation Bank and implementation of

its activities set out in this proposal. The needs for operational and administrative

expenditure are expected to comparable to the existing Innovation Fund, but are

expected to be larger given the size of the fund, even once potential for synergies

with existing activities is taken into account.

• Innovation Fund

o Extension of the Innovation Fund and implementation of improvements

contained in this proposal.

• Modernisation Fund

EN 14 EN

o Extension of the Modernisation Fund and implementation of improvements

and simplifications contained in this proposal (modify eligibility criteria and

distribution key, extend eligible investment areas).

• Aviation

o Implementation of changes to scope and coverage of aviation set out in this

proposal (increased coverage of business jets, support to uptake of sustainable

aviation fuel, electrification and reducing of overall climate impacts, support to

pricing of aviation greenhouse gas emissions in third countries).

• Maritime

o Implementation of changes to scope and coverage of maritime transport set out

in this proposal (MRV simplification and enhancement elements, expanded scope,

expanded monitoring of the evasion risk, IMO adjustments, measures to increase

uptake of sustainable maritime propulsion (SMAP), support to pricing of maritime

greenhouse gas emissions in third countries).

• Stationary: addressing the risk of carbon leakage

o Implementation of post-2030 measures to address carbon leakage risk

(establishment of new benchmark values, potentially taking into account benchmarks

in linked systems, implementation of rules, processes, oversight and capacity

building for conditional free allocation).

• Stationary: monitoring, reporting and verification of emissions

o Implementation of post-2030 measures to further develop the legal framework

for monitoring and reporting of emissions concerning rules for carbon capture and

usage (CCU), rules for the accounting of cross-border carbon capture and storage and

rules for emissions from landfills. Similar adjusts are need to the framework for

verification of emissions reports and the accreditation of verifiers.

• Stationary: waste and CCU

o Implementation of proposed inclusion of waste incineration in the EU ETS,

assessment of inclusion of landfill (for review in 2034).

o Implementation of proposed inclusion of non-permanent CCU, development of

secondary legislation and monitoring framework.

• Linking with 3rd country emissions trading systems

o Implementation of adaptations to EU ETS as a result of 3rd country linking

agreements (including with UK).

• Development of single market for CO2 (CCS market)

o Development of legislation, safeguards and implementation systems necessary

to enable ETS exemption for CO2 captured, transported and permanently stored,

including in third countries with a linked ETS, as proposed in the legal text.

3.1. Heading(s) of the multiannual financial framework and expenditure budget

line(s) affected

• Existing budget lines

In order of multiannual financial framework headings and budget lines.

Heading of Budget line Type of Contribution

EN 15 EN

multiannual

financial

framework

expenditure

Number

Diff./Non-

diff.80

from

EFTA

countries 81

from

candidate

countries

and

potential

candidates 82

From

other

third

countries

other assigned

revenue

2 [XX.YY.YY.YY] successor of LIFE Diff. YES YES NO YES

4 [XX.YY.YY.YY] EMSA subsidy Diff. YES NO NO YES

2 [XX.YY.YY.YY] Innovation fund - support

expenditure

Non Diff. NO NO NO YES

2 [XX.YY.YY.YY] - Innovation fund - subsidy

executive agency

Non Diff. NO NO NO YES

2 [XX.YY.YY.YY] - Innovation Fund -

operational expenditure

Diff. NO NO NO YES

4 [XX.YY.YY.YY] EMSA subsidy Diff. YES NO NO YES

4 20 01 02 01 - Headquarters and Representation

offices

Non Diff. NO NO NO NO

4 20 02 01 01 - Contract staff Non Diff. NO NO NO NO

4 20 02 06 01 - Mission and representation

expenses Non Diff. NO NO NO NO

4 20 02 06 02 - Conference and meeting costs Non Diff. NO NO NO NO

• New budget lines requested

In order of multiannual financial framework headings and budget lines.

Heading of

multiannual

financial

framework

Budget line Type of

expenditure Contribution

Number

Diff./Non-

diff.83

from

EFTA

countries 84

from

candidate

countries

and

potential

candidates 85

From

other

third

countries

other assigned

revenue

2 [XX.YY.YY.YY] - carbon removal integration

- support expenditure

Non Diff. NO NO NO YES

2 [XX.YY.YY.YY] - carbon removal integration

- subsidy executive agency

Non Diff. NO NO NO YES

2 [XX.YY.YY.YY] carbon removal integration -

operational expenditure

Diff. NO NO NO YES

2 [XX.YY.YY.YY] - IBD - support expenditure Non Diff. NO NO NO YES

2 [XX.YY.YY.YY] - IBD - subsidy executive

agency

Non Diff. NO NO NO YES

2 [XX.YY.YY.YY] IBD - operational

expenditure

Diff. NO NO NO YES

4 [XX.YY.YY.YY] Union Registry financing –

support expenditure

Non Diff. NO NO YES YES

4 [XX.YY.YY.YY] Union Registry financing –

operational expenditure Diff. NO NO YES YES

80 Diff. = Differentiated appropriations / Non-diff. = Non-differentiated appropriations. 81 EFTA: European Free Trade Association. 82 Candidate countries and, where applicable, potential candidates from the Western Balkans. 83 Diff. = Differentiated appropriations / Non-diff. = Non-differentiated appropriations. 84 EFTA: European Free Trade Association. 85 Candidate countries and, where applicable, potential candidates from the Western Balkans.

EN 16 EN

EN 17 EN

3.2. Estimated financial impact of the proposal on appropriations

3.2.1. Summary of estimated impact on operational appropriations

–  The proposal/initiative does not require the use of operational appropriations

– ✓ The proposal/initiative requires the use of operational appropriations, as explained below

3.2.1.1. Appropriations from voted budget

EUR million (to three decimal places)

Heading of multiannual financial framework 2

DG: <CLIMA> Year Year Year Year Year Year Year

TOTAL MFF 2028-2034 2028 2029 2030 2031 2032 2033 2034

Operational appropriations

[XX.YY.YY.YY] successor LIFE programme Commitments (1a)

3.900 2.900 3.400 2.600 5.200 2.600 1.800 22.400

Payments (2a)

3.900 2.900 3.400 2.600 5.200 2.600 20.600

Budget line Commitments (1b) 0

Payments (2b) 0

Appropriations of an administrative nature financed from the envelope of specific programmes86

Budget line (3) 0

TOTAL appropriations Commitments =1a+1b+3

3.900 2.900 3.400 2.600 5.200 2.600 1.800 22.400

for DG <CLIMA>Payments =2a+2b+3

0.000 3.900 2.900 3.400 2.600 5.200 2.600 20.600

86 Technical and/or administrative assistance and expenditure in support of the implementation of EU programmes and/or actions (former ‘BA’ lines), indirect research, direct research.

EN 18 EN

Year Year Year Year Year Year Year TOTAL

MFF 2028-

2034 2028 2029 2030 2031 2032 2033 2034

TOTAL operational

appropriations

Commitments (4)

3.900 2.900 3.400 2.600 5.200 2.600 1.800 22.400

Payments (5) 0.000 3.900 2.900 3.400 2.600 5.200 2.600 20.600

TOTAL appropriations of an

administrative nature financed from the

envelope for specific programmes

(6) 0,000

0.000 0.000 0.000 0.000 0.000 0.000 0.000

TOTAL

appropriations

under HEADING

<2.>

Commitments =4+6

3.900 2.900 3.400 2.600 5.200 2.600 1.800 22.400

of the multiannual

financial framework Payments =5+6

0.000 3.900 2.900 3.400 2.600 5.200 2.600 20.600

EUR million (to three decimal places)

Heading of multiannual financial framework 4 ‘Administrative expenditure’87

DG: <CLIMA> Year Year Year Year Year Year Year TOTAL

MFF

2028-2034 2028 2029 2030 2031 2032 2033 2034

 Human resources 3,4514,2434,2434,0334,0334,0334,033 28,069

 Other administrative expenditure 0,2000,2000,2000,2000,2000,2000,200 1,400

87 The necessary appropriations should be determined using the annual average cost figures available on the appropriate BUDGpedia webpage.

EN 19 EN

TOTAL DG

<CLIMA>

3,651 4,443 4,443 4,233 4,233 4,233 4,233 29,469

TOTAL appropriations under HEADING 4 of

the multiannual financial framework

(Total

commitments =

Total payments)

3,615 4,443 4,443 4,233 4,233 4,233 4,233 29,469

EUR million (to three decimal places)

Year Year Year Year Year Year Year TOTAL

MFF 2028-

2034 2028 2029 2030 2031 2032 2033 2034

TOTAL

appropriations under

HEADINGS 1 to 4

Commitments 7.551 7.343 7.843 6.833 9.433 6.833 6.033 51.869

of the multiannual

financial framework Payments 3.651 8.343 7.343 7.633 6.833 9.433 6.833 50.069

3.2.1.2. Appropriations from external assigned revenues

EUR million (to three decimal places)

Heading of multiannual financial framework 2 ETS funds

DG: <CLIMA – funds > Year Year Year Year Year Year Year TOTAL

MFF

2028-2034 2028 2029 2030 2031 2032 2033 2034

Operational appropriations

Budget line - IF operational expenditure Commitments (1a) p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

EN 20 EN

Payments (2a) p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Budget line - IBD - operational expenditure Commitments (1b) p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Payments (2b) p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Budget line - Carbon Removal - operational expenditure Commitments

(1c) p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Payments (2c) p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Budget line - EMSA subsidy Commitments (1d) 4,028 4,028 4,028 3,698 3,698 3,698 3,698 26,877

Payments (2d) 4,028 4,028 4,028 3,698 3,698 3,698 3,698 26,877

Budget line - IF - support + subsidy EA

(3) p.m.p.m.p.m.p.m.p.m.p.m.p.m. p.m.

Budget line -IBD - support + subsidy EA

(3) p.m.p.m.p.m.p.m.p.m.p.m.p.m. p.m.

Budget line -carbon removal - support + subsidy EA

(3) p.m.p.m.p.m.p.m.p.m.p.m.p.m. p.m.

TOTAL appropriations Commitments =1+3

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

for DG <CLIMA>Payments =2+3

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Year Year Year Year Year Year Year TOTAL

MFF 2028-

2034 2028 2029 2030 2031 2032 2033 2034

TOTAL operational

appropriations

Commitments (4) p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Payments (5) p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

EN 21 EN

TOTAL appropriations of an

administrative nature financed from the

envelope for specific programmes

(6)

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

TOTAL

appropriations

under HEADING 2

Commitments =4+6

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

of the multiannual

financial framework Payments =5+6

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Heading of multiannual financial framework 2 Registry financing

DG: <CLIMA - registry>

Year Year Year Year Year Year Year TOTAL

MFF

2028-

2034 2028 2029 2030 2031 2032 2033 2034

Operational appropriations

budget line [XX.YY.YY.YY] Registry - operational expenditure

Commitments (1a) 2.604 11.126 17.636 14.275 14.275 14.275 14.275 90,266

Payments (2a)

2.604 11.126 17.636 14.275 14.275 14.275 75,541

Budget line Commitments (1b) 0

Payments (2b) 0

Appropriations of an administrative nature financed from the envelope of specific programmes88

Budget line (3) 6.60414.17823.49123.49123.49123.49123.491138.239

TOTAL appropriations Commitments =1a+1b+3 9.209 25.303 41.128 37.766 37.766 37.766 37.766 228,505

88 Technical and/or administrative assistance and expenditure in support of the implementation of EU programmes and/or actions (former ‘BA’ lines), indirect research, direct research.

EN 22 EN

for DG < CLIMA - registry >Payments =2a+2b+3 6.604 16.782 34.617 41.128 37.766 37.766 37.766 213,780

Year Year Year Year Year Year Year TOTAL

MFF 2028-

2034 2028 2029 2030 2031 2032 2033 2034

TOTAL operational

appropriations

Commitments (4)

2.604 11.126 17.636 14.275 14.275 14.275 14.275 88.466

Payments (5)

2.604 11.126 17.636 14.275 14.275 14.275 74.191

TOTAL appropriations of an

administrative nature financed from the

envelope for specific programmes

(6)

6,604 14.178 23.491 23.491 23.491 23.491 23.491 138.239

TOTAL

appropriations

under HEADING 2

Commitments =4+6

9.209 25.303 41.128 37.766 37.766 37.766 37.766 226.705

of the multiannual

financial framework Payments =5+6

6.604 16.782 34.617 41.128 37.766 37.766 37.766 212.430

Year Year Year Year Year Year Year TOTAL

MFF

2028-2034 2028 2029 2030 2031 2032 2033 2034

• TOTAL

operational

appropriations (all

operational

headings)

Commitments (4)

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Payments (5)

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

• TOTAL appropriations of an

administrative nature financed from

the envelope for specific programmes

(all operational headings)

(6) p.m.

p.m. p.m. p.m. p.m. p.m. p.m. p.m.

EN 23 EN

TOTAL

appropriations

under Headings 1

to 3

Commitments =4+6

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

of the multiannual

financial framework

(Reference amount)

Payments =5+6

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Heading of multiannual financial framework 4 ‘Administrative expenditure’ – EMSA subsidy

DG: <CLIMA> Year Year Year Year Year Year Year TOTAL

MFF

2028-2034 2028 2029 2030 2031 2032 2033 2034

 Human resources 0 0 0 0 0 0 0 0

 EMSA subsidy 4.032 4.032 4.032 3.702 3.702 3.702 3.702 26.907

 Other administrative expenditure 0 0 0 0 0 0 0 0

TOTAL DG

<CLIMA>Appropriations 4.032 4.032 4.032 3.702 3.702 3.702 3.702 26.907

TOTAL appropriations under HEADING 4 of

the multiannual financial framework

(Total

commitments =

Total payments) 4.032 4.032 4.032 3.702 3.702 3.702 3.702 26.907

Year Year Year Year Year Year Year TOTAL

MFF 2028-

2034 2028 2029 2030 2031 2032 2033 2034

TOTAL

appropriations under Commitments

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

EN 24 EN

HEADINGS 1 to 4

of the multiannual

financial framework Payments

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

3.2.2. Estimated output funded from operational appropriations (not to be completed for decentralised agencies)

Commitment appropriations in EUR million (to three decimal places)

Indicate objectives

and outputs Year Year Year Year Year Year Year TOTAL

2028-2034  2028 2029 2030 2031 2032 2033 2034

OUTPUTS

Type

Averag

e

cost

No Cost No Cost No Cost No Cost No Cost No Cost No Cost N

o Cost

SPECIFIC OBJECTIVE No 1.1.2 - waste

Technical assistance

on adapting MRV

processes and

regulations 0,500 0,500 0,500 0,500 0 2,000

Technical feasibility

study and testing 0,500 0,500 0,500 0,500 0 2,000

SPECIFIC OBJECTIVE No 1.1.2 - CCU

Support study for

revision of secondary

legislation 1 0,500 1 0,500

Support study to

assess implementation 1 0,500 1 0,500

Subtotal for specific objective No 1.1.2 1 1,000 0 0,500 0 1,000 0 1,000 0 0,500 0 0,500 1 0,500 2 5,000

SPECIFIC OBJECTIVE No 1.1.3 - carbon leakage

Sectoral fallback

benchmarks, technical

assistance for

development 0,500 0,500 0,500 0 1,500

Free allocation: post-2030

continuation of NIMS and FA 0,500 0,500 0,500 0 1,500

EN 25 EN

processes

Free allocation: develop and

implement conditionality rules 0,500 0,500 0,500 0 1,500

Free allocation:

training & capacity

building for NCAs 0,500 0,500 0,500 0 1,500

Free allocation: enhanced oversight,

information to MS and administrative

checks 0,500 0,500 0,500 0 1,500

Subtotal for specific objective No 1.1.3 0 1,500 0 1,500 0 1,500 0 1,000 0 1,000 0 1,000 0 0,000 0 7,500

SPECIFIC OBJECTIVE No 1.2.1 - carbon removal integration

Study for review in

2034 1 0,500 1 0,500

Study for expansion to

new removal types 1 0,500 1 0,500

Study for purchasing

programme 1 0,500 1 0,500

Communication on

calls to purchase

removals 1 0,200 1 0,200

Implementation of

purchasing

programme 0,500 0,200 0,200 0 0,900

Auction preparation

(Common Auction

Platform) 0,200 0,100 0,100 0 0,400

Registry changes

(internal marking of

allowances) 0,200 0,100 0,100 0 0,400

CRCF registry:

cancellation of credits 0,200 0,100 0,100 0 0,400

Subtotal for specific objective No 1.2.1 0 0,000 0 0,000 0 0,000 0 0,000 3 2,600 0 0,500 1 0,700 4 3,800

SPECIFIC OBJECTIVE No 1.3.1 - aviation

update reporting

template to reflect:

increased geographic

scope 0,100 0,100 0,100 0 0,300

EN 26 EN

update Eurocontrol

small emitters tool

(business jets) 0,100 0,100 0,100 0 0,300

update reporting

template to reflect:

SAF support 0,100 0,100 0,100 0 0,300

support 3rd country

GHG pricing 0,500 0,500 0,500 0,500 0,500 0,500 0,500 0 3,500

Subtotal for specific objective No 1.3.1 0 0,8 0 0,8 0 0,8 0 0,5 0 0,5 0 0,5 0 0,5 0 4,400

SPECIFIC OBJECTIVE No 1.3.2 - maritime

Evasion risk (study,

IT adaptations, real

time monitoring) 0,100 0,100 0,100 0,100 0,100 0,100 0,100 0 0,700

study to assess

upcoming IMO

mechanism 0,500 0 0,500

Subtotal for specific objective No 1.3.2 0 0,600 0 0,100 0 0,100 0 0,100 0 0,100 0 0,100 0 0,100 0 1,200

TOTALS 1 3,900 0,000 2,900 0,000 3,400 0 2,600 3,000 4,700 0,000 2,600 2 1,800 7 22,400

EN 27 EN

3.2.3. Summary of estimated impact on administrative appropriations

–  The proposal/initiative does not require the use of appropriations of an

administrative nature

–  The proposal/initiative requires the use of appropriations of an administrative

nature, as explained below

3.2.3.1. Appropriations from voted budget

VOTED

APPROPRIATIONS

Year Year Year Year Year Year Year TOTAL

2028 -

2034 2028 2029 2030 2031 2032 2033 2034

HEADING 4

Human resources 3,4514,2434,2434,0334,0334,0334,033 28,069

Other administrative

expenditure 0,2000,2000,2000,2000,2000,2000,200 1,400

Subtotal HEADING 4 3,651 4,443 4,443 4,233 4,233 4,233 4,233 29,469

Outside HEADING 4

Human resources 0.000 0.000 0.000 0.000 0.0000.0000.000 0.000

Other expenditure of an administrative nature

0.000 0.000 0.000 0.000 0.0000.0000.000 0.000

Subtotal outside

HEADING 4 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

TOTAL 3,651 4,443 4,443 4,233 4,233 4,233 4,233 29,469

3.2.3.2. Appropriations from external assigned revenues

EXTERNAL

ASSIGNED

REVENUES

Year Year Year Year Year Year Year TOTAL 2028

- 2034 2028 2029 2030 2031 2032 2033 2034

HEADING 4

Human resources

0.000 0.000 0.000 0.000 0.0000.0000.000 0.000

Other

administrative

expenditure

0.000 0.000 0.000 0.000 0.0000.0000.000 0.000

Subtotal

HEADING 4 4.032 4.032 4.032 3.702 3.702 3.702 3.702 26.907

Outside HEADING 4

Human

resources 6,3571,06023,05127,29227,55727,55727,557 153,866

Other

expenditure of an

administrative

nature (subsidy executive

agency)

p.m. p.m. p.m. p.m. p.m. p.m. p.m. p.m.

Other

expenditure of an

administrative

nature

0.2480.7431.5001.5001.5001.5001.500 8.490

Subtotal

outside

HEADING 4

6.604 13.528 22.352 26.356 26.626 26.626 26.626 148.719

TOTAL 6.604 13.528 22.352 26.356 26.626 26.626 26.626 148.719

EN 28 EN

3.2.3.3. Total appropriations

TOTAL

VOTED

APPROPRIATIONS

+

EXTERNAL

ASSIGNED

REVENUES

Year Year Year Year Year Year Year

TOTAL

2028 –

2034 2028 2029 2030 2031 2032 2033 2034

HEADING 4

Human resources 3,4514,2434,0334,0334,0334,0334,033 28,069

Other administrative

expenditure 0,2000,2000,2000,2000,2000,2000,200 1,400

Subtotal HEADING 4 3,651 4,443 4,443 4,233 4,233 4,233 4,233 29,469

Outside HEADING 4

Human resources 6,357 14,495 23,051 27,292 27,557 27,557 27,557 153,866

Other expenditure of an

administrative nature 0,248 0,743 1,500 1,500 1,500 1,500 1,500 8,490

Subtotal outside

HEADING 4 6,604 1,060 24,551 28,792 29,057 29,057 29,057 162,356

TOTAL 10,255 17,971 26,795 30,589 30,589 30,589 30,589 178,188

The appropriations required for human resources and other expenditure of an administrative nature

will be met by appropriations from the DG that are already assigned to management of the action

and/or have been redeployed within the DG, together, if necessary, with any additional allocation

which may be granted to the managing DG under the annual allocation procedure and in the light of

budgetary constraints.

3.2.4. Estimated requirements of human resources

–  The proposal/initiative does not require the use of human resources

– ✓ The proposal/initiative requires the use of human resources, as explained

below

3.2.4.1. Financed from voted budget

Estimate to be expressed in full-time equivalent units (FTEs)

VOTED APPROPRIATIONS Year Year Year Year Year Year Year

2028 2029 2030 2031 2032 2033 2034

 Establishment plan posts (officials and temporary staff)

20 01 02 01 (Headquarters and

Commission’s Representation

Offices)

14 17 17 17 17 17 17

20 01 02 03 (EU Delegations) 0 0 0 0 0 0 0

(Indirect research) 0 0 0 0 0 0 0

(Direct research) 0 0 0 0 0 0 0

Other budget lines (specify) 0 0 0 0 0 0 0

• External staff (in FTEs)

20 02 01 (AC, END from the

‘global envelope’)

7 9 9 7 7 7 7

20 02 03 (AC, AL, END and JPD

in the EU Delegations) 0 0 0 0 0 0 0

EN 29 EN

Admin. Support

line

• at

Headquarte

rs

0 0 0 0 0 0 0

[XX.01.YY.YY] • in EU

Delegations 0 0 0 0 0 0 0

(AC, END - Indirect research) 0 0 0 0 0 0 0

(AC, END - Direct research) 0 0 0 0 0 0 0

Other budget lines (specify) -

Heading 4 0 0 0 0 0 0 0

Other budget lines (specify) - Outside Heading 4

0 0 0 0 0 0 0

TOTAL 21 26 26 24 24 24 24

3.2.4.2. Financed from external assigned revenues

EXTERNAL ASSIGNED

REVENUES

Year Year Year Year Year Year Year

2028 2029 2030 2031 2032 2033 2034

 Establishment plan posts (officials and temporary staff)

20 01 02 01 (Headquarters and

Commission’s Representation Offices)

0 0 0 0 0 0 0

20 01 02 03 (EU Delegations) 0 0 0 0 0 0 0

(Indirect research) 0 0 0 0 0 0 0

(Direct research) 0 0 0 0 0 0 0

Other budget lines (registry) 24 48 80 80 80 80 80

• External staff (in full time equivalent units)

20 02 01 (AC, END from the

‘global envelope’) 0 0 0 0 0 0 0

20 02 03 (AC, AL, END and JPD

in the EU Delegations) 0 0 0 0 0 0 0

Admin. Support

line

• at

Headquarte rs

0 0 0 0 0 0 0

[XX.01.YY.YY] • in EU

Delegations 0 0 0 0 0 0 0

(AC, END - Indirect research) 0 0 0 0 0 0 0

(AC, END - Direct research) 0 0 0 0 0 0 0

Other budget lines (specify) -

Heading 4 0 0 0 0 0 0 0

Other budget lines (specify) -

Outside Heading 4

4 22 28 60 62 62 62

TOTAL 28 70 108 140 142 142 142

3.2.4.3. Total requirements of human resources

TOTAL VOTED

APPROPRIATIONS +

EXTERNAL ASSIGNED

REVENUES

Year Year Year Year Year Year Year

2028 2029 2030 2031 2032 2033 2034

 Establishment plan posts (officials and temporary staff)

EN 30 EN

20 01 02 01 (Headquarters and

Commission’s Representation

Offices)

14 17 17 17 17 17 17

20 01 02 03 (EU Delegations) 0 0 0 0 0 0 0

(Indirect research) 0 0 0 0 0 0 0

(Direct research) 0 0 0 0 0 0 0

Other budget lines (specify) 24 48 80 80 80 80 80

• External staff (in full time equivalent units)

20 02 01 (AC, END from the

‘global envelope’)

7 9 9 9 9 9 9

20 02 03 (AC, AL, END and JPD

in the EU Delegations) 0 0 0 0 0 0 0

Admin. Support

line

• at

Headquarte

rs

0 0 0 0 0 0 0

[XX.01.YY.YY] • in EU

Delegations 0 0 0 0 0 0 0

(AC, END - Indirect research) 0 0 0 0 0 0 0

(AC, END - Direct research) 0 0 0 0 0 0 0

Other budget lines (specify) -

Heading 4 0 0 0 0 0 0 0

Other budget lines (specify) -

Outside Heading 4

4 22 28 60 62 62 62

TOTAL 49 96 134 164 166 166 166

The staff required to implement the proposal (in FTEs):

To be covered by

current staff

available in the

Commission

services

Exceptional additional staff*

To be financed

under Heading 4

or Research

To be financed

from BA line

To be financed

from fees

Establishment

plan posts

17 N/A 80

External staff

(CA, SNEs, INT)

9 62

Description of tasks to be carried out by:

Officials and temporary staff Staff needs represent additional tasks necessary to implement the amended, expanded

emisisons trading system (ETS) presented in this proposal. These include continued

management and development of the Union Registry as well as implementation of

measures related to maritime transport, management of carbon leakage prevention

measures, linking with third country ETSs, expansion of EU ETS to waste and non-

permanent carbon capture & utilisation (CCU) and a single market for captured CO2.

External staff Staff needs represent the need to continue the activities of the Innovation Fund and set

up and implement the Industrial Decarbonisation Bank and purchase of permanent

EN 31 EN

carbon removals, as well as clerical tasks related to the Union Registry.

3.2.5. Overview of estimated impact on digital technology-related investments

Resources requested in this proposal include activities that make use of existing IT

systems. The need for additional IT investment will be re-visited in future proposals,

in particular future delegated acts concerning functioning of the Union Registry, IT

link with the UK ETS Registry and the enhanced Registry operation model.

TOTAL Digital

and IT

appropriations

Year Year Year Year Year Year Year TOTAL

MFF

2028 -

2034 2028 2029 2030 2031 2032 2033 2034

HEADING 4

IT expenditure (corporate)

0 0 0 0 0 0 0 0

Subtotal

HEADING 4 0 0 0 0 0 0 0 0

Outside HEADING 4

Policy IT expenditure on operational programmes

0 0 0 0 0 0 0 0

Subtotal outside

HEADING 4 0 0 0 0 0 0 0 0

TOTAL 0 0 0 0 0 0 0 0

3.2.6. Compatibility with the current multiannual financial framework

The proposal/initiative:

– ✓ can be fully financed through redeployment within the relevant heading of the

multiannual financial framework (MFF)

The expenditure should be covered by a combination of MFF funds from the

European Competitiveness Fund (the successor to the LIFE programme) and external

assigned revenues.

–  requires use of the unallocated margin under the relevant heading of the MFF

and/or use of the special instruments as defined in the MFF Regulation

–  requires a revision of the MFF

3.2.7. Third-party contributions

The proposal/initiative:

–  does not provide for co-financing by third parties

– ✓ provides for the co-financing by third parties estimated below:

The agreement linking the EU and UK emissions trading systems, foresees a contribution

from the UK to the certain aspects of EU ETS functioning.

EN 32 EN

3.3. Estimated impact on revenue

–  The proposal/initiative has no financial impact on revenue.

– ✓ The proposal/initiative has the following financial impact:

– ✓ on own resources

– ✓ on other revenue

–  please indicate, if the revenue is assigned to expenditure lines

EUR million (to three decimal places)

For assigned revenue, specify the budget expenditure line(s) affected.

3 existing innovation fund budget lines

New budget lines for IDB to be created (3)

New budget lines for removals facility to be created (3)

New budget lines for support to pricing of aviation greenhouse gas emissions in third

countries

New budget lines for support to pricing of maritime greenhouse gas emissions in

third countries

Other remarks (e.g. method/formula used for calculating the impact on revenue or

any other information).

The proposal foresees that that proceeds from auctioning of allowances should be

made available for:

- financing the functioning of the Union Registry and facility for purchase of

international credits.

- the purchase of permanent certified carbon removals, in view of the expected cost

differential between removals and ETS allowances, and that the proceeds from this

auctioning will count as externally assigned revenues.

- the Modernisation Fund, a share of the cap will continue to be provided for this,

an additional share will be allocated to beneficiary Member States through the

Industrial Decarbonisation Bank.

- the Innovation Fund with proceeds constituting externally assigned revenues.

- the Industrial Decarbonisation Bank with proceeds constituting externally

assigned revenues. Any income generated by the activities of the Bank will also

constitute externally assigned revenue.

- to facilitate pricing greenhouse gas emissions from the aviation and maritime

sectors in third countries.

In addition, the provisional agreement linking the EU and UK emissions trading

systems, foresees a contribution from the UK to certain aspects of EU ETS

functioning.

4. DIGITAL DIMENSIONS

N/A

EN 33 EN

4.1. Requirements of digital relevance

N/A

4.2. Data

N/A

4.3. Digital solutions

4.4. Interoperability assessment

4.5. Measures to support digital implementation

N/A

N/A

N/A

EN EN

EUROPEAN COMMISSION

Brussels, 17.7.2026 COM(2026) 616 final

ANNEXES 1 to 2

ANNEXES

to the

Proposal for a

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND THE COUNCIL amending

Directive 2003/87/EC and Decision (EU) 2015/1814 as regards driving competitiveness

and cost-effective decarbonisation

{COM(2026) 619 final} - {COM(2026) 620 final} - {SEC(2026) 616 final} - {SWD(2026) 616 final} - {SWD(2026) 617 final} - {SWD(2026) 618 final}

EN 1 EN

ANNEX I

(1) Annex I to Directive 2003/87/EC is amended as follows:

(a) The title is replaced by

ANNEX I

‘AVIATION, MARITIME TRANSPORT AND INSTALLATIONS’

(b) in point 5 the following words are deleted: ‘or municipal’

(c) the table is amended as follows:

(i) the first row is replaced by the following:

Combustion of fuels in installations with a total

rated thermal input exceeding 20 MW (except in

installations for the incineration of hazardous or

municipal waste)

Carbon dioxide 

(ii) the twenty- fourth row is replaced by the following:

Production of hydrogen (H2), including

production of hydrogen as by-product only, and

synthesis gas with a production capacity

exceeding 5 tonnes per day

Carbon dioxide

(iii) the twenty-sixth row is replaced by the following:

Capture of carbon dioxide from activities

covered by this Directive

Carbon dioxide 

(iv) the twenty-seventh row is replaced by the following:

Transport of carbon dioxide to an installation

performing an activity covered by this Directive,

with the exclusion of those emissions covered by

another activity under this Directive

Carbon dioxide

(v) the following rows are inserted after the twenty-eight row:

Processing of carbon dioxide from activities

covered by this Directive, including purification,

liquefaction, gasification, temporary storage or

other similar services

Carbon dioxide

Utilisation of carbon dioxide from activities

covered by this Directive chemically binding it

into other carbon-based molecules

Distribution of synthetic fuels that incorporate

carbon from carbon dioxide captured from

activities covered by this Directive

EN 2 EN

(vi) the following changes are made in the twenty-ninth row on ‘Aviation’:

(a) a sentence is added after the first sentence:

‘From 1 January 2029, flights which depart from an aerodrome situated

in the territory of a Member State to which the Treaty applies, except

for aircraft operators operating flights between two different States with

total annual emissions lower than 10 000 tonnes calculated in

accordance with this Annex.’

(b) point (j) is replaced by the following:

‘(j) flights which, but for this point, would fall within this activity,

performed by an aircraft operator operating flights with total annual

emissions lower than 1 000 tonnes per year falling under the scope of

this Directive as defined before 2029 or under the scope of the ETS of

Switzerland or the ETS of the UK.

Flights referred to in points (l) and (m) or performed exclusively for the

transport, on official mission, of reigning Monarchs and their

immediate family, Heads of State, Heads of Government and

Government Ministers, of a Member State may not be excluded under

this point;’;

(c) point (k) is replaced by the following:

‘(k) flights which, but for this point, would fall within this activity,

performed by an aircraft operator operating flights with total annual

emissions subject to surrender obligation pursuant to Article 12(3)(b)

lower than 1 000 tonnes per year, not taking into account emissions for

which the surrender obligation is considered to be satisfied under

Article 3c(8) or Article 28a(1)’;

(vii) the thirtieth row is replaced by the following:

Maritime transport

Maritime transport activities covered by

Regulation (EU) 2015/757 with the exception of

the maritime transport activities covered by

Article 2(1d) points (e) and (f), and until 31

December 2030 the maritime transport activities

covered by Article 2(1a), (1aa), (1ba) and (1d)

points (a) to (d) of that Regulation, and from 1

January 2031 the maritime transport activities

covered by Article 2(1b) of that Regulation.

Carbon dioxide

From 1 January

2026, methane and

nitrous oxide

(viii) the following rows are added:

Waste incineration and waste co-incineration

From 1 January 2031, disposal or recovery of

waste in waste incineration plants or in waste co-

incineration plants as defined under Article 3(40)

and 3(41) of Directive 2010/75/EU of the

Carbon dioxide 

EN 3 EN

European Parliament and of the Council for non-

hazardous waste with a capacity exceeding

3 tonnes per hour, excluding chemical recycling.

The Commission shall report by 31 July 2029

whether one or both of the following conditions

have been met:

(2) the establishment of landfill register(s)

 pursuant to Article [X] of Regulation

(EU) […./..] [Circular Economy Act to

ensure environmental integrity and

avoid circumvention; and 

(3) Best Available Techniques for Landfills

conclusions have been published in the

Official Journal of the European

Union pursuant to Article 13 of

Directive 2010/75/EU.

Where both of the conditions referred to are met,

Articles 14 and 15 shall apply to landfills where

there is the disposal or recovery of non-

hazardous waste from 1 January 2031.

Where one or both of the conditions referred to

are not met, Articles 14 and 15 shall apply to

landfills where there is the disposal or recovery

of non-hazardous waste from 1 January 2034.

Carbon dioxide 

(2) Annex IIb to Directive 2003/87/EC is replaced by the following:

ANNEX IIb

Distribution of funds from the Modernisation Fund corresponding to

Article 10(1)

Bulgaria 5.44%

Czechia 13.02%

Estonia 1.62%

Greece 8.42%

Croatia 2.43%

Latvia 1.01%

Lithuania 2.17%

EN 4 EN

Hungary 5.78%

Poland 38.14%

Portugal 7.26%

Romania 9.92%

Slovakia 4.78%

(3) Annex IV to Directive 2003/87/EC is amended as follows:

(a) in the title of Part A, the word ‘stationary’ is deleted;

(b) in Part A, the section ‘Calculation’ is amended as follows:

(c) in the third paragraph, the following is added:

‘Carbon dioxide captured from the atmosphere or from sources with an

emission factor of zero, shall have an emissions factor of zero, unless that CO2

is leaked, vented or otherwise released from a permanent geological storage

site.’

(4) Annex V to Directive 2003/87/EC, in the title of Part A, the word ‘stationary’ is

deleted.

EN 5 EN

ANNEX II

The following Annex is added to Decision 2015/1814:

ANNEX

Dynamic parameters

Dynamic MSR parameters decreasing at a yearly rate of 4% per year

Million

EUAs 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040

Upper

buffer

947 909 872 837 804 772 741 711 683 656 629 604 580

Upper

threshold

833 800 768 737 708 679 652 626 601 577 554 532 510

Lower

threshold

400 384 369 354 340 326 313 301 289 277 266 255 245

Lower

buffer

300 288 276 265 255 245 235 225 216 208 199 191 184

Release

rate

100 96 92 88 85 82 78 75 72 69 66 64 61

    Resolutsiooni liik: Riigikantselei resolutsioon Viide: Kliimaministeerium /  / ; Riigikantselei /  / 2-5/26-01506

Resolutsiooni teema: ELi heitkogustega kauplemise süsteemi konkurentsivõime suurendamine ning seire-, aruandlus- ja tõendamiskorra lihtsustamine.

Adressaat: Kliimaministeerium Ülesanne: Tulenevalt Riigikogu kodu- ja töökorra seaduse § 152` lg 1 p 2 ning Vabariigi Valitsuse reglemendi § 3 lg 4 palun valmistada ette Vabariigi Valitsuse seisukohtade ja otsuste eelnõud järgmiste algatuste kohta, kaasates seejuures olulisi huvigruppe ja osapooli:

- Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2003/87/EC and Decision (EU) 2015/1814 as regards driving competitiveness and cost-effective decarbonisation. COM(2026)616

-  Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Regulations (EU) 2015/757 and (EU) 2023/1805 to simplify and streamline monitoring, reporting and verification and to align with revisions of the EU Emissions Trading System. COM (2026)620

EISi toimiku nr: 26-0303 Tähtaeg: 28.08.2026

Adressaat: Majandus- ja Kommunikatsiooniministeerium, Rahandusministeerium, Regionaal- ja Põllumajandusministeerium, Välisministeerium Ülesanne: Palun esitada oma sisend Kliimaministeeriumile seisukohtade kujundamiseks antud eelnõu kohta (eelnõude infosüsteemi (EIS) kaudu). Tähtaeg: 18.08.2026

Lisainfo: Eelnõusid on kavas arutada valitsuse 10.09.2026 istungil ja Vabariigi Valitsuse reglemendi § 6 lg 6 kohaselt sellele eelneval nädalal (02.09.2026) EL koordinatsioonikogus. Esialgsed materjalid EL koordinatsioonikoguks palume esitada hiljemalt 28.08.2026. 

Kinnitaja: Siim Tiidemann, Euroopa Liidu asjade direktor Kinnitamise kuupäev: 29.07.2026 Resolutsiooni koostaja: Sandra Metste [email protected],  

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