• EU governments could be required to direct 75% of emissions trading revenues toward decarbonising industries covered by the ETS.
• The proposal goes beyond the European Commission’s 50% requirement and responds to competitiveness concerns from heavy industry.
• The plan would also reshape the ETS emissions cap after 2030, allowing slower cuts initially before accelerating reductions later in the decade.

European Union governments could be required to channel substantially more carbon market revenue into domestic industrial decarbonisation under a proposal from a key European Parliament negotiator.

Peter Liese, the Parliament’s lead negotiator on reforms to the EU Emissions Trading System, has proposed that governments direct 75% of their ETS revenues toward industries covered by the scheme.

That is significantly higher than the 50% level proposed by the European Commission.

The proposal puts industrial competitiveness at the centre of negotiations over the future of Europe’s flagship carbon market. Manufacturers have increasingly warned that high energy and carbon costs are weakening the economics of European production.

More ETS revenue for European industry

The EU ETS requires power generators and industrial companies to obtain permits covering their carbon dioxide emissions. Companies can also trade unused allowances through the carbon market.

Revenue from government sales of those permits has become an increasingly important source of climate finance.

Liese wants a larger share of that money returned to the industries facing the carbon price. Funds would support investments that cut emissions from European manufacturing and energy production.

The approach is designed to provide near-term support while retaining the EU’s longer-term climate objectives.

“It is possible to adapt a current scheme and give industry more breathing space without endangering the climate targets,” Liese said in a statement.

The debate comes as policymakers face pressure to reconcile decarbonisation with industrial resilience. Chemicals producers and other energy-intensive businesses have warned that compliance costs can make European operations less competitive against facilities in markets with weaker carbon constraints.

For corporate leaders, the proposed revenue rules could expand the pool of public funding available for industrial decarbonisation projects.

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Carbon cuts would shift across the 2030s

Liese is also proposing changes to the pace at which the ETS emissions cap declines.

Under his draft, the cap would fall by 3.4% annually from 2031. The reduction rate would then shift to 2.3% from 2036.

The Commission had proposed an annual reduction of 3.7% from 2031, followed by 1.7% from 2036.

The difference matters for businesses planning capital expenditure during the next decade.

Liese’s approach would initially give ETS-covered industries more time to reduce emissions. Companies would then face a steeper reduction trajectory during the second half of the 2030s.

That could ease near-term compliance pressure while preserving pressure for deeper industrial transformation later.

The structure also reflects a broader political challenge facing Brussels. Policymakers want to maintain the credibility of EU climate targets without accelerating factory closures, investment leakage or declining competitiveness.

Parliament negotiations will shape final reform

Liese is a German member of the European People’s Party, the largest political group in the European Parliament. Its position will carry significant weight as lawmakers negotiate the reform.

The European Parliament and EU member states are now developing their respective negotiating positions.

Both sides are expected to establish those positions in December. They would then enter negotiations over the final legislation.

For investors and corporate executives, the outcome could influence both carbon costs and access to transition finance across Europe.

A requirement to reinvest 75% of ETS revenues into covered industries would more closely connect carbon pricing with industrial policy. It could also strengthen incentives for European companies to keep low-carbon investment within the bloc.

The wider question is whether Europe can use carbon market revenues to protect industrial capacity without weakening the emissions reductions the ETS was designed to deliver.

How lawmakers resolve that tension will help determine the cost, speed and location of Europe’s industrial transition through the 2030s.