Written by Nicolas d’Hanis
Dear reader,
Brussels may be slowing down for the summer, but the EU policy agenda certainly is not. This edition spotlights the European Commission’s long-awaited proposal to reform the EU Emissions Trading System (ETS). We also bring you the latest developments on the Electrification Action Plan, the Net-Zero Industry Act implementing guidelines and some insights on the upcoming EU climate adaptation plans. Enjoy the read!
The spotlight
The ETS reform, balancing ambition with industrial survival
On 17 July 2026, the European Commission released its long-awaited proposal to revise the EU Emissions Trading System (ETS). In response to geopolitical tensions, high energy prices and mounting pressure on European industry, the Commission aims to recalibrate the carbon market and slightly temper its climate ambition. Rather than scaling back carbon pricing, the proposal refocuses the ETS on safeguarding industrial competitiveness, easing transition timelines and unlocking large-scale investment in decarbonisation.
How will the reduction trajectory and allocation rules change?
The Commission is softening the ETS emissions trajectory and extending protective measures to grant energy-intensive industries a longer runway to transition. To prevent the carbon market from tightening too quickly after 2030, the proposed Linear Reduction Factor (LRF) will drop to 3.7% annually between 2031 and 2035, and further to 1.7% between 2036 and 2040, a noticeable step down from the previously planned 4.4% pace.
Furthermore, for sectors under the Carbon Border Adjustment Mechanism (CBAM), the reduction of free allowances has been delayed, pushing their complete phase-out to 2038. However, these continued free allowances are now strictly conditional: industrial facilities will only retain them if they can prove that they are actively investing those savings into European decarbonisation projects.
How will carbon revenues be channelled back to industry?
The Commission plans to heavily reinvest carbon revenues into European businesses to support hard-to-abate sectors, clean innovation, and maritime transport. A centrepiece of this effort is the new Industrial Decarbonisation Bank, the previously announced fund aimed at mobilising €100 billion for industrial decarbonisation, alongside a pre-2030 ETS Investment Booster Fund. Under the proposal, Member States will also be legally required to spend at least 50% of their national ETS auction revenues directly on decarbonising ETS sectors. For the maritime domain, the Commission proposes a Sustainable Maritime Alternative Propulsion (SMAP) mechanism, reserving 110 million allowances between 2028 and 2040 to spur the deployment of sustainable fuels, hydrogen, and clean propulsion technologies.
How will the scope expand across maritime and carbon removal?
The revised framework broadens the reach of the ETS to cover new transport segments, waste processing, and negative emission technologies. In the maritime sector, the Commission proposes bringing specific categories of smaller vessels between 400 and 5,000 gross tonnage into scope, while explicitly incorporating offshore worksites, such as those servicing offshore wind and energy infrastructure, into the carbon market.
Besides, the proposal also clarifies accounting rules for Carbon Capture and Storage (CCS) and Carbon Capture and Utilisation (CCU), and introduces certified permanent carbon removals into the ETS from 2036, alongside a limited allowance for high-quality international carbon credits. Curious about the details? Read more in Publyon’s dedicated blog post on the ETS reform.
What’s next?
The Commission’s publication sets off a high-stakes legislative battle within the EU institutions, where initial reactions are sharply divided. While industrial groups welcome the increased investment certainty and lowered LRF, climate-focused MEPs and Member States have criticised the proposal for weakening Europe’s climate ambition. The Irish Presidency of the Council has prioritised the file, aiming for a General Approach by 11 December 2026.
For businesses across the industrial, maritime, and energy sectors, these proposed shifts in free allocation conditions, funding pools, and reporting rules will fundamentally alter long-term investment strategies.
Read our blog post for more details and get in touch to discuss what the revised ETS could mean for your business.
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Policy updates
EU agrees on 21st Russia sanctions package after LNG shipping compromise with Greece
On 23 July, the EU adopted its 21st sanctions package against Russia, further targeting the country’s energy revenues and the maritime networks supporting its oil exports.The measures extend restrictions on Russia’s ‘shadow fleet’ by adding 41 vessels to the sanction list and expanding sanctions to companies providing bunkering and other services to these ships. The package also freezes the G7 oil price cap mechanism until July 2027, imposes transaction bans on oil traders, ports and other entities facilitating Russian energy exports and strenghtens restrictions on the financial sector and measures against sanctions circumvention.
The agreement followed difficult negotiations, with Greece securing a one-year exemption for continued transport of Russian LNG to third countries under specific conditions. The outcome highlights the growing challenge of maintaining unanimity on sanctions as Member States seek to protect their national economic interests.
The Commission publishes guidance on implementing the Net-Zero Industry Act’s non-price criteria
On 22 July, the European Commission published guidance on how to apply the Net-Zero Industry Act’s (NZIA) non-price criteria in public procurement and renewable energy auctions. Together, they aim to ensure public spending rewards not only price but also resilient clean energy supply chains.
For public procurement (Article 25)), contracting authorities must include minimum environmental requirements, limits on dependence on dominant non-EU suppliers, and at least one additional criterion, such as social conditions, cybersecurity or delivery capacity.
For renewable energy auctions (Article 26)), developers will need to meet pre-qualification requirements covering responsible business conduct, cybersecurity and delivery capacity. Sustainability and resilience criteria may be used either to pre-qualify bidders or to award contracts. These requirements apply to 30% of annual auction volume or 6 GW.
Both sets of guidelines include exemptions, including on cost grounds.
France and Germany strengthen coordination on the future of EU industrial policy
Following joint ministerial meetings mid-July, France and Germany are working on a joint position that would compromise between the future of the automotive sector and the EU’s Industrial Accelerator Act (IAA) by the end of the summer. Paris signalled that it could accept further flexibility on the 2035 combustion engine phase-out rules if Berlin backs a more ambitious IAA ahead of autumn EU negotiations, including stronger “Made in Europe” provisions to protect European industry from global competition.
These efforts are grounded in the conclusion of the 26th Franco-German Ministerial Council whereby the two countries call for technology-neutral and flexible CO2 standards, stronger European content requirements and accelerated uptake of zero- and low-emission vehicles. France and Germany also pledged to work together on simplifying EU legislation while preserving strategic objectives.
Commission unveils its Electrification Action Plan
On 17 July, the European Commission presented its long-awaited Electrification Action Plan to make Europe the world’s first electro-powered continent. The plan aims to double electricity’s share in final energy consumption to 46% and reduce the EU’s reliance on imported fossil fuels in the wake of recent energy price shocks.
The plan aims to double electricity’s share in final energy consumption to 46% and reduce the EU’s reliance on imported fossil fuels following recent energy price shocks.
The Commission estimates that reaching this indicative target could cut gas imports by over70%, reduce oil imports by 40%, and lower the annual fossil fuel import bill by up to €260 billion by 2040. To get there, the plan includes measures to narrow the electricity-gas price gap, phase out fossil fuel subsidies, speed up smart meter roll out, support heat pumps and electric vehicles, and improve grid access through more flexible connection and the revision of network charge rules.
The Commission will now implement the action plan, with several legislative proposals, guidance and initiatives foreseen in the coming years.
Commission outlines upcoming EU climate adaptation plan with new resilience obligations
During an interview, Martin Špolc, Head of Unit for Preparedness and Adaptation at DG CLIMA, indicated that the forthcoming EU Climate Resilience Framework, expected in Q3 2026, may introduce new resilience requirements for the public sector through a combination of legislative and non-legislative measures.
According to Špolc, the framework will create a common temperature trajectory that Member States and EU institutions will be obliged to use when assessing climate risks. This climate risk assessment will then need to be followed by robust climate resilience plans that will designate which ministries or departments are responsible for managing each identified risk. Alongside these obligations, the Commission plans to develop an “European Climate Viewer” digital tool to help visualise the impacts of the temperature trajectory across regions and time.
More broadly, the initiative also positions climate resilience technologies as a potential area for European industrial growth, with the Commission estimating the global market opportunity at €3-4 trillion.
ENVI votes on CBAM expansion and Decarbonisation Fund
On 6 July, the European Parliament’s ENVI Committee agreed on its position on the revision of the Carbon Border Adjustment Mechanism (CBAM) and the Temporary Decarbonisation Fund.
MEPs voted to expand CBAM to cover 457 downstream steel and aluminium products while strengthening anti-circumvention measures. The use of international carbon credits (Article 6) to meet CBAM obligations was rejected, while calling upon the Commission to come up with a clear methodology to assess future extensions to additional sectors.
To strengthen Europe’s industrial competitiveness, ENVI wishes to bring forward the launch of the Temporary Decarbonisation Fund to 2027, broaden its scope to include downstream manufacturers and fertiliser producers, and allocate a larger share of EU ETS revenues to the Fund.
The Parliament is expected to confirm its negotiating mandate during the September plenary before entering trilogue negotiations. The Council adopted its General Approach on the CBAM expansion on 12 June.
Grids Permitting Directive moves closer toward trilogue negotiations
Following the ITRE committee’s adoption of its report on 3 July, the European Parliament is set to adopt its negotiating mandate on the Grids Permitting Directive in plenary. The Council of the EU already adopted its position on 26 June.
Both institutions back faster permitting through shorter deadlines, streamlined procedures and digital one-stop shops. However, they remained divided on several key provisions.
The European Parliament endorsed stronger provisions on tacit approval and the presumption of overriding public interest for electricity infrastructure, while rejecting an extension of these measures to gas projects. In contrast, the Council of the EU favours greater flexibility allowing Member States to decide whether to apply tacit approval to certain grid connection procedures and whether to establish independent permitting facilitators, while giving national governments more possibilities to tailor permitting procedures to national circumstances.
EU institutions are aiming to deliver a final agreement before the end of 2026.
