2026-27 Review of the EU Emissions trading system 1

Photo Credit: Stegra

Carbon Gap's policy position

This review is an unparalleled opportunity to create large-scale demand for carbon removal in Europe. For Carbon Gap, a best-case outcome is a policy design that delivers a polluter-pays market for CDR at scale, with clear safeguards for quality and quantity, all the while sustaining the ETS’s primary role as an emissions reduction instrument for EU industry.

At a stakeholder roundtable on 12 May 2026, the Commission laid out three options it is considering for CDR integration:

Our core recommendations for the legislative proposal are:

For more on why the current ETS proposal matters, check back here for our policy brief.

What is the ETS?

The EU Emissions Trading System (ETS) 1 is a central instrument in EU climate policy, putting a price on carbon emitted by the bloc’s biggest polluters. It sets a limit, or "cap", on the greenhouse gases certain industries are allowed to emit each year. Companies must acquire and surrender "allowances", with each one giving the right to emit one tonne of CO2. If a company needs to emit more than its allowance, it has to either cut its emissions or buy more allowances from others. ETS 1 is a dynamic system where the cap decreases over time, resulting in a gradual transition of European Industry.

The EU ETS 1 currently covers around 40% of the EU's total emissions, including power, heavy industry, aviation and, more recently, shipping. It is now in its fourth phase, running from 2021 to 2030. According to ICAP, the EU ETS 1 is the oldest cap-and-trade system in force and the largest by trading volume and value.

Carbon removal is not currently included in the EU ETS 1, but in Summer 2026, the European Commission is set to propose new legislation that tackles how to integrate CDR.

Read the full policy history and timeline on our Policy Tracker.

Why is the integration of carbon removals being considered?

The EU is carrying out a major review of the ETS in 2026/27. The Commission has an explicit mandate within this review to consider the inclusion of carbon removals to the EU ETS, under Article 30 of the ETS Directive.

By 31 July 2026, the Commission shall report to the European Parliament and to the Council on the following matters, accompanied, where appropriate, by a legislative proposal and impact assessment:
(a) how negative emissions resulting from greenhouse gases that are removed from the atmosphere and safely and permanently stored could be accounted for and how those negative emissions could be covered by emissions trading, if appropriate, including a clear scope and strict criteria for such coverage, and safeguards to ensure that such removals do not offset necessary emission reductions in accordance with Union climate targets laid down in Regulation (EU) 2021/1119

What’s next and how will the policy process work?

A legislative proposal and impact assessment for the ETS review will be published on 17 July. Following the ordinary legislative procedure, it will then be considered by the Council and the Parliament to develop their respective positions, before moving to trilogues (negotiations between all three institutions) and final adoption. We'll update this page with our response as each stage is reached, so you can follow how our position develops and where we're pushing for change.

Why does the CDR integration in ETS matter?

To achieve a net zero or net-negative European economy, European industries must transition away from emitting processes. Durable Carbon Dioxide Removal presents a limited flexibility to address emissions that are hardest to abate. Counterbalancing of such (process) emissions via permanent carbon removals oftentimes presents the only viable option for European industries, to the extent they have already reduced emissions as far as possible. But with that, we are currently seeing the formation of a new economic sector, that allows to build European leadership in critical future-proofed industry. The (industrial) job potentials stemming from employment in Carbon Removal are deemed significant and the expected economic valuation of a CDR economy by 2050 goes into several hundred billion EUR.

The CDR ecosystem is already active across Europe but several industry associations allow to capture a more local picture. Together, these associations represent nearly 200 members, active in carbon removal already today. Besides these shareholders in CDR, various other NGOs provided thoughts and analysis on the ETS and CDR interface: