The Council of the European Union has published a note dated 23 July 2026 transmitting a Commission declaration on proposed amendments to the EU Emissions Trading System (EU ETS) and the Market Stability Reserve. The declaration outlines the Commission's policy stance on ensuring competitiveness and cost-effective decarbonisation within the revised framework, serving as a political signal to Member States and co-legislators during ongoing negotiations.
The declaration commits to maintaining the EU ETS as the central tool for cost-effective emissions reduction while safeguarding industrial competitiveness. It proposes measures to prevent carbon leakage, including continued free allocation and border adjustment mechanisms where appropriate. The Commission also calls for reinforcing the Market Stability Reserve to avoid surplus allowances undermining the carbon price signal, and for aligning the ETS with the EU's 2040 climate target trajectory to ensure predictability for investors. Additionally, the declaration advocates for simplifying rules to reduce administrative burden on small emitters and supporting innovation in low-carbon technologies, while coordinating with other policy instruments such as the Carbon Border Adjustment Mechanism and the Innovation Fund to maximise synergies.
Policy orientations and trade-offs The declaration reflects a balancing act between climate ambition and industrial competitiveness. Enhanced carbon price stability could drive long-term investment in green technologies, but tighter benchmarks may increase costs for energy-intensive industries over time. Reinforcing the Market Stability Reserve may reduce market volatility but could also accelerate the decline in allowance supply, potentially raising carbon prices. Simplified rules could lower compliance costs, particularly for SMEs, but might increase monitoring complexity for national authorities. The ambiguous alignment with 2040 targets may create uncertainty for sectors planning long-term decarbonisation pathways.
Impact on stakeholders - EU producers in energy-intensive sectors: Continued free allowances and border measures protect against carbon leakage, but tighter benchmarks and declining allowance supply could raise compliance costs. - EU consumers: Higher carbon prices may lead to increased energy and product costs, though innovation support could foster cheaper low-carbon alternatives over time. - National authorities: Simplified rules reduce administrative burden, but monitoring complexity may increase due to coordination with multiple policy instruments. - SMEs: Lower compliance costs from simplified rules benefit small emitters, but they may face challenges adapting to evolving benchmarks and carbon price signals.
Institutional follow-up The declaration is a non-binding political signal from the Commission, intended to influence the legislative process as the European Parliament and Council negotiate the final text of the ETS amendment directive. The Council's note transmits the declaration for information, without taking a position. Next steps include continued trilogue discussions between the co-legislators, with the declaration serving as a reference point for the Commission's priorities.