Eurogas Recommendations: EU ETS Review
Read full Eurogas recommendations here.
The EU Emissions Trading System (ETS) remains one of the most effective climate policy instruments, delivering emissions reduction while supporting investment in low carbon technologies and strengthening Europe's energy independence, becoming the cornerstone of the EU's decarbonisation framework.
However, while the EU ETS remains a necessary and effective market-based instrument for driving decarbonisation and should be preserved as a cornerstone of climate policy, significant challenges remain. In particular, urgent action is needed to address affordability and industrial competitiveness.
Additionally, the ongoing ETS review should consider the potential impact of the proposal on the long-term ETS price signal. The Commission proposal could result in significantly lower EUA prices than under a stricter cap trajectory. While this may reduce short-term compliance costs for industry, it could also weaken the economic incentive to invest in emissions abatement and decarbonisation solutions, including CCUS technologies and carbon removals. Any new measures should therefore avoid inadvertently undermining the long-term investment signal needed to support industrial decarbonisation.
In this context, the ETS review should preserve the integrity and effectiveness of the system, while allowing for targeted adjustments to provide relief to European industries.
This paper sets out Eurogas' key recommendations for the ongoing ETS review.
Recommendations:
- Market Stability Reserve: Increase transparency on EUA allowance supply by providing clear, comprehensive and regularly updated information on the total number of allowances in circulation, unallocated allowances to support market integrity, predictability and informed decision-making.
- International Carbon Credits: Ensure alignment of the EU framework for international carbon credits with the Paris Agreement Crediting Mechanism (Article 6.4) and early engagement via pilot phase to develop a pipeline of eligible projects. Avoid binary political decisions to adjust the LRF based on the Commission's report on the international market credit.
- Domestic Permanent Carbon removals: Article 14(1a) rights should be extended to all ETS operators and all certified permanent carbon removal technologies recognised under the ETS, including DACCS-generated units. Allow companies to offset emissions at group level rather than solely at installation level. At the same time, avoid an unintended increase in the ETS cap through the issuance of new EUAs by committing to the procurement of 250 Mt of permanent removals, supported by additional funding mechanisms such as CCfDs and early offtake agreements.
- Non-Permanent CCU and Carbon Accounting: Preserve upstream ETS accounting for RFNBOs to ensure consistency with existing EU legislation and methodologies, and to uphold the polluter pays principle through accounting at the point of CO₂ capture. Recognise flexible allocation in case of mixed CO2 streams based on a mass balancing principle.
- Permanent CCU: Review and expand the list of permanent CCU products recognised under the EU legislation to include additional applications that achieve permanent carbon sequestration, such as solid carbon derived from low-carbon hydrogen production and other eligible industrial processes.
- Business Interruption Risk: Address business interruption risks by introducing a mechanism that supports emitters against high-impact, low-probability events, ensuring that they do not bear the costs arising across the entire CO₂ value chain.
- Allocation of ETS revenues across energy vectors: Ensure that ETS revenues can support technology-neutral decarbonisation pathways, including gas, biomethane, hydrogen and their enabling infrastructure, while recognising the role of renewable and low-carbon fuels in decarbonising hard-to-abate sectors such as maritime transport.
- Benchmarks and Free allocation:
a. Introduce a dedicated benchmark for district heating;
b. Maintain Free Allocation for District Heating at 30% until 2040;
c. Link free allocation conditionality to the existence of a viable business case including having enabling conditions in place. - Funding:
a. Ensure that the Industrial Decarbonisation Bank provides predictable funding, workable conditions while guaranteeing sufficient safeguards, and supports the deployment of CCUS infrastructure across the value chain.
b. Maintain adequate Modernisation Fund support and technology-neutral eligibility criteria. - Regulatory clarity: Adopt the relevant delegated acts as soon as possible to provide regulatory certainty and visibility for investors and operators and unlock the necessary investments.
Download the recommendations below.
