The European Commission’s proposal to revise the EU ETS introduces the first mechanism linking domestic permanent carbon removals with the EU carbon market, expands the regulatory framework for carbon capture, utilisation and storage (CCS/CCU), and strengthens financial support for industrial decarbonisation, including through the Industrial Decarbonisation Bank. Several elements of the proposal reflect recommendations previously developed by Carbon Management Europe, particularly on carbon accounting, CO2 transport, and permanent carbon removals. While the proposal represents a major step forward, several design choices remain that will determine how effectively the revised EU ETS supports industrial carbon management in practice.
1. Cross-border CO2 transport and storage
The proposal expands the regulatory framework governing CO2 transport infrastructure, clarifies permitting responsibilities for cross-border CO2 transport, and allows recognition of permanent geological storage in third countries. However, recognition of third-country geological storage remains conditional on an ETS linking agreement, even though equivalent monitoring, reporting and verification (MRV) and storage safeguards could also be ensured through other legal arrangements. The proposal also leaves key implementation questions to be addressed in subsequent legislation, including the harmonisation of concepts such as the definition of a CO2 transport operator, or establishing common rules for accounting across transport chains, including custody transfer, transport losses, and multimodal transport.
2. Carbon accounting for mixed CO2 streams and non-permanent CCU
The proposal introduces downstream accounting rules for non-permanent CCU pathways by deferring accounting for certain captured CO2 until its subsequent release in another Annex I activity. It also recognises the challenge of accounting for captured CO2 originating from mixed fossil and biogenic streams by requiring implementing rules on the “order of capture”. These developments are consistent with several recommendations previously put forward by Carbon Management Europe.
However, the key methodologies remain to be defined. The proposal does not yet specify how captured CO2 should be allocated between zero-rated and non-zero-rated sources. Further clarity will also be needed on accounting for exported CCU-derived products, CO2 releases outside the EU ETS perimeter, and interactions with temporary derogations for municipal waste incineration. The consistency and environmental integrity of the new framework will therefore depend on the implementing and delegated acts that follow.
The proposal addresses many of the practical challenges that have held back industrial carbon management – from cross-border CO2 transport and CO2 storage in third countries to carbon accounting for mixed carbon streams. However, the success of these reforms will depend on detailed accounting rules that are still to come. The next phase of the legislative process will therefore be just as important as the proposal itself, and it must deliver the clarity industry needs without unnecessary delay.
– Aymeric Amand, Policy and Research Director
3. Permanent removals and international credits
The proposal establishes the first mechanism linking permanent carbon removals with the EU ETS. Between 2031 and 2040, the Commission would auction up to 250 million additional allowances to procure an equivalent volume of CRCF-certified domestic permanent removals, while separately procuring up to 260 Mt of international “high-quality and high-integrity” credits between 2036 and 2040 without making international credits eligible for ETS compliance. ETS installations would also be able to compensate part of their fossil emissions using certified removals generated from the permanent storage of their own biogenic emissions – representing a first, albeit limited, form of direct integration.
The proposal ensures that no more allowances are auctioned than are needed to finance the procurement of domestic removals. However, it does not provide a corresponding mechanism to adjust the additional allowances if sufficient removals cannot ultimately be delivered, nor does it establish how potential under-delivery would be addressed. The proposal also introduces permanent removals without yet establishing a framework for managing residual emissions as the ETS cap approaches net zero. Although the additional allowances are presented as creating additional emission space, they remain fully fungible EU allowances rather than being reserved for residual emissions. The planned review before 2035 should therefore address the long-term relationship between residual emissions and permanent removals.
The Commission’s commitment to purchase 250 million tonnes of CRCF-certified domestic permanent removals sends the strongest demand signal that Europe has ever put forward for these sectors. It also anchors the CRCF as a central instrument of EU climate policy. The challenge now is ensuring that sufficient domestic supply can be delivered to match that ambition.
– Zisan Özdemir, Technology and Policy Analyst
The Commission has taken an important first step by integrating permanent carbon removals into the EU ETS. But many expected this proposal to explain how the system would ultimately deal with genuinely residual emissions as the cap approaches net zero. That question remains unanswered, and it is likely to become one of the defining debates in the future evolution of the EU ETS.
– Konstantin Philipp, Policy Advisor
4. Investment and industrial competitiveness
The proposal substantially strengthens the financial framework for industrial decarbonisation. The Industrial Decarbonisation Bank would introduce an initial “Investment Booster”, using 400 million allowances to accelerate investment decisions before 2030, followed by a second phase financed through a further 400 million auctioned allowances to provide long-term revenue support through Carbon Contracts for Difference and related mechanisms.
The Innovation Fund would also be reinforced, while the Modernisation Fund would explicitly include CCS and CCU among the investments eligible for support alongside energy system modernisation. Furthermore, Member States would be required to dedicate at least 50% of their ETS auction revenues to priority investments supporting industrial decarbonisation – including CCS/CCU projects, CO2 transport infrastructure, permanent carbon removals, and the development of lead markets for low-carbon products.
The proposal also links free allocation more closely to industrial transformation. From 2031 onwards, installations would be required to submit EU Decarbonisation Investment Plans to receive 80% of their free allocation, while the remaining 20% would only be allocated after demonstrating that the planned investments have been implemented and have delivered significant emissions reductions.
Carbon Management Europe welcomes the possibility of pooling investments across installations, which could facilitate shared CO2 transport and storage infrastructure and help de-risk carbon management projects at industrial cluster level. The effectiveness of the new conditionalities will ultimately depend on their detailed implementation, including the proposed exemptions for best-performing installations and zero- and low-emitting installations, and the streamlined compliance route for Innovation Fund and Industrial Decarbonisation Bank beneficiaries.
By earmarking 800 million allowances for the Industrial Decarbonisation Bank, the proposal makes a long-term commitment to industrial decarbonisation that extends well beyond individual funding calls. Combining upfront investment support with Carbon Contracts for Difference has the potential to support projects from construction through to commercial operation.
– Salman Muhammad, Technology and Policy Analyst
The Commission's proposal now enters the legislative process. Carbon Management Europe looks forward to working with policymakers and stakeholders to help ensure that the revised EU ETS delivers robust carbon accounting, environmental integrity, and effective incentives for industrial decarbonisation.