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DRAFT OPINION (COM(2026)0616 – C100188/2026 – 2026/0212(COD))

On the 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

ITRE-PA-792091

Committee on Industry, Research and Energy · Rapporteur: Jüri Ratas

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The Committee on Industry, Research and Energy's draft opinion responds to the Commission's proposal to amend the EU Emissions Trading System (EU ETS) directive and Decision (EU) 2015/1814 on competitiveness and cost-effective decarbonisation. It proposes removing strict conditionality for free allocation, keeping only an anti-relocation rule, and a two-stage linear reduction factor of 3.2% for 2031–2035 and 2.2% from 2036. It introduces sector-specific indicators to monitor whether the Carbon Border Adjustment Mechanism (CBAM) and the Temporary Decarbonisation Fund protect against carbon leakage, with the phase-out of free allocation to be paused or reversed if they do not. It also amends rules on permanent carbon removals, municipal waste incineration, revenue use, the CBAM factor and national carbon taxes.

Committee position. The rapporteur proposes to amend the Commission proposal by removing strict conditionality for free allocation, introducing a two-stage linear reduction factor, and adding safeguards for CBAM sectors, among other changes.

Key points

  1. The rapporteur proposes removing strict conditionality rules for the phase-out of free allocation (the '80/20' provision), keeping only a targeted anti-relocation rule.
  2. Companies receiving free allowances must keep production capacity in Europe; if they relocate outside the EU, they must repay those allowances.
  3. The rapporteur advocates a two-stage linear reduction factor: 3.2% for 2031–2035, followed by 2.2% from 2036 onwards.
  4. Sector-specific Key Performance Indicators would monitor production relocation, output drops and import market shares; if the phase-out of free allowances impairs EU production or export competitiveness, it must be paused or reversed.
  5. The Commission would assess every two years from 30 November 2028 whether CBAM and the phase-out of free allocation continue to protect against carbon leakage, including for EU exports.
  6. The CBAM factor would be adjusted, including to 70% in 2030, 58% in 2031, 40% in 2032, 27% in 2033 and 15% from 2034 to 2037, with 0% from 2038.
  7. The EU ETS would be extended to municipal waste incineration in a way that avoids double burden and accounting of emissions.
  8. The Union-wide quantity of allowances would be increased by 250 million, auctioned from 2028 to 2040 to fund domestic permanent carbon removals, with biochar limited to up to 20%.
  9. The Commission would give priority to international credits from projects using technologies with a high share of value from EU production or research and development.
  10. Member States would use at least 75% of auction revenues to support decarbonisation of ETS sectors, including measures to reduce emissions in buildings.
  11. Installations below the average of the 10% most efficient installations in 2026 and 2027 would receive an additional 10% of free allocation.
  12. A share of allowances would be reserved for projects in CBAM sectors corresponding to their share of emissions in 2027, to address carbon leakage in third-country markets.

Who is affected

  • Energy-intensive industries receiving free allowances, which would face less conditionality but must not relocate outside the EU.
  • EU exporters in CBAM sectors, for whom export volume and carbon cost gap indicators would be monitored.
  • Operators of municipal waste incineration installations, which would be included in the EU ETS.
  • Member States, which would have to use at least 75% of auction revenues for decarbonisation.
  • Installations below the average of the 10% most efficient, which would receive an additional 10% of free allocation.

Figures and deadlines

  • 3.2% linear reduction factor from 2031 to 2035.
  • 2.2% linear reduction factor from 2036.
  • 260 million allowances for the purchase of 260 Mt of international credits from 2036 to 2040.
  • 250 million allowances auctioned from 2028 to 2040 for permanent carbon removals.
  • Up to 20% of those allowances limited to biochar activities.
  • At least 75% of auction revenues to support decarbonisation of ETS sectors.
  • CBAM factor of 70% in 2030, 58% in 2031, 40% in 2032, 27% in 2033, 15% from 2034 to 2037 and 0% from 2038.
  • Additional 10% of free allocation for installations below the average of the 10% most efficient in 2026 and 2027.