On 17 July 2026, the European Union proposed the biggest change to its main climate tool — the Emissions Trading System, or ETS — since it started in 2005. The new plan would slow down how quickly businesses must cut pollution, give companies more time to get free pollution permits, and open the door to new technologies that remove carbon from the air BBC.

Here's how the ETS works in simple terms. Imagine the EU hands out a limited number of pollution tickets each year to companies that run power plants, factories, airlines, and shipping operations Reuters. Every company needs one ticket for each tonne of carbon it releases. The total number of tickets shrinks every year, so overall pollution goes down. Companies that clean up fast can sell extra tickets to others. Those that don't must buy more.

Right now, the total number of tickets shrinks by 4.3% each year. The new plan would slow that to about 3.7% starting in 2031, and then to 1.7% from 2036 BBC.

Some companies get free tickets so they don't lose ground to competitors outside the EU. Those free tickets were supposed to end by 2034 and be replaced by a system that charges importers for the pollution tied to goods entering the EU. Under the new plan, free tickets would continue until 2038 — but only for companies that promise to invest in cleaner technology BBC. Companies with approved plans would get 80% of their free tickets right away, and the remaining 20% only after they actually make the improvements BBC. The Commission also published a separate proposal on performance benchmarks to go alongside the ETS revision European Commission.

The plan also brings permanent carbon removal technologies into the ETS for the first time European Commission. These are engineered systems designed to take carbon out of the atmosphere and store it permanently. Starting in 2036, the EU would also buy international carbon offset credits to cover 2% of the pollution cuts required from ETS-covered sectors Reuters.

The Commission says the ETS has already helped cut emissions by 50% in the sectors it covers, and that the changes still align with the EU's goal of cutting carbon emissions by 90% by 2040 compared with 1990 levels European Commission BBC. The stated aim is to keep the EU on track for carbon neutrality by 2050 European Commission.

EU climate commissioner Wopke Hoekstra called the approach "more business-friendly" and "savvy" BBC. Reactions from EU countries have been mixed. Italy called the ETS a hidden tax that keeps energy prices high BBC. Poland's climate minister Paulina Hennig-Kloska called the softer rules a "huge success for Poland" and said Poland would push for even more changes BBC. German Green politician Michael Bloss warned the plans would lead to "gigantic climate pollution" and harm the next generation BBC. Days before the proposal was announced, ten EU countries urged the Commission to rethink a new carbon price on fuel Reuters.

The proposal needs approval from EU member states and the European Parliament, a process the Commission says could take a year BBC.

The broader context here is a tug-of-war inside European climate policy. The EU has legally binding climate targets, but meeting them costs money, and businesses and governments are feeling the pressure. The original ETS was designed to push companies to clean up fast by shrinking the pollution ticket supply and eventually ending free permits. This new plan loosens both of those levers.

The Commission's answer is to attach strings: free permits only go to companies with real plans to cut pollution, and they don't get the full amount until they deliver. Whether those conditions are enough to make up for the slower pollution cuts is the key question lawmakers will now debate. Adding carbon removals and international offsets gives companies more ways to comply, but could also lower the price of polluting.

For businesses, the plan buys time. For climate advocates, it raises concerns about whether the EU is slowing down when it should be speeding up. The coming legislative fight will show whether this compromise survives or gets pulled apart.