Feedback to call for evidence - ETS1 review

Carbon Market Watch argues that the EU ETS1 fails to drive industrial decarbonisation due to the continued allocation of free emission allowances, which it claims undermines the carbon price signal for sectors like steel, cement, and chemicals. The submission calls for the complete phase-out of free allocations and indirect cost compensation, suggesting that any remaining benefits be tied to decarbonisation milestones. It further advocates for expanding the ETS scope to cover all departing flights from 2027, including non-CO2 effects and flights to third countries, and extending maritime coverage to 100% of extra-EEA routes and all small ships by 2027. Regarding market stability, the document suggests maintaining existing Market Stability Reserve (MSR) and Linear Reduction Factor (LRF) rules until 2035 to preserve investment signals. Finally, it strongly opposes the integration of carbon removals into the EU ETS to avoid mitigation deterrence and the risk of using removals as a substitute for actual emission reductions.

• Free emission allowances and indirect cost compensation have limited the decarbonisation of the chemicals, cement, and steel sectors, which are the primary sources of industrial CO2 pollution in the EU. Carbon Market Watch argues that these should be phased out, and any interim benefits must be linked to investments in decarbonisation technologies or specific milestones.
• The EU ETS is currently insufficient for the aviation sector because it excludes non-CO2 effects and most flights to and from third countries. The submission recommends expanding the scope to all departing flights starting in 2027, as the CORSIA scheme is viewed as misaligned with the Paris Agreement and EU climate targets.
• To maximize climate ambition in the maritime sector, the EU ETS should cover 100% of extra-EEA routes in conjunction with the IMO’s Net Zero Framework and include all small ships by 2027 to prevent approximately 15% of shipping emissions from remaining unaddressed.
• Analysis suggests that the Market Stability Reserve (MSR) will not need to disburse allowances until 2035. Consequently, the document recommends that any review of the MSR and Linear Reduction Factor (LRF) be delayed until 2031, alongside the ETS2 review, to maintain a strong investment signal and revenue streams for Member States.
• Carbon removals should not be integrated into the EU ETS because doing so could lead to mitigation deterrence, where removals are used as a substitute for reducing emissions. The document asserts that high-quality carbon dioxide removal (CDR) is too scarce and expensive to be used for offsetting within the ETS.
• A significant concentration of pollution exists within the EU ETS, with 30 companies accounting for 50% of emissions in 2022. In the steel sector specifically, ArcelorMittal and ThyssenKrupp are responsible for half of the EU's steel CO2 emissions.
• There is a stark disparity between the funding provided via the Innovation Fund and the value of free allowances; between 2021 and 2030, heavy industry is expected to receive approximately €226.7 billion in free allowances, compared to the Innovation Fund's total budget of about €45 billion.

APA

Carbon Market Watch (2025). Feedback to call for evidence - ETS1 review. https://carbonmarketwatch.org/wp-content/uploads/2025/07/20250701-ETS-public-consultation-Feedback-to-call-for-evidence-ETS1-review-1.pdf

Chicago

Carbon Market Watch. Feedback to call for evidence - ETS1 review. 2025. https://carbonmarketwatch.org/wp-content/uploads/2025/07/20250701-ETS-public-consultation-Feedback-to-call-for-evidence-ETS1-review-1.pdf.

Wikipedia

{{cite press release |author=Carbon Market Watch |title=Feedback to call for evidence - ETS1 review |date=July 2025 |url=https://carbonmarketwatch.org/wp-content/uploads/2025/07/20250701-ETS-public-consultation-Feedback-to-call-for-evidence-ETS1-review-1.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{carbonmarketwatch2025feedback, author = {{Carbon Market Watch}}, title = {{Feedback to call for evidence - ETS1 review}}, publisher = {Carbon Market Watch}, year = {2025}, month = jul, url = {https://carbonmarketwatch.org/wp-content/uploads/2025/07/20250701-ETS-public-consultation-Feedback-to-call-for-evidence-ETS1-review-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }