EU Emissions Trading System: Assessing Industry Engagement with the 2026 Review Proposals

The analysis in this briefing is based on the leaked draft report of MEP Peter Liese. The official draft report was released on the 15th of September and closely followed the leaked draft. When necessary, the differences between the leaked draft and official draft are highlighted throughout the text.

This briefing is for policymakers, investors, and companies following the development of the EU’s Emissions Trading System (ETS) Review. It has been prepared following the leaked draft report of Member of the European Parliament and ETS rapporteur Peter Liese (EPP). The briefing compares key elements of the European Commission’s proposal for the review and the leaked draft report by MEP Peter Liese (EPP) with advocacy positions from a sample of prominent industry voices. These include six companies and industry associations that have advocated to weaken the ETS (Cefic, Eurofer, BusinessEurope, ArcelorMittal, BASF, and ExxonMobil) and six that have supported its ambition (Business for CBAM Coalition, CLG Europe, Eurelectric, Ecocem, SSAB, and Iberdrola). It is not an exhaustive analysis of corporate engagement with the review proposals, but an examination of the range of debate across European business on these topics and how this compares to the European Commission’s and the ETS Rapporteur’s proposals. The specific actors were selected due to their high levels of engagement with the policy, detailed positions on many elements of the revision, and representation of a range of sectors.¹

The analysis finds that the Commission's proposal reflects most of the core asks of industry voices advocating to weaken the ETS. The rapporteur's draft report goes further still, aligning with these positions more closely.

The first part of this brief summarizes the findings. The second part compares these industry actors’ positions on individual ETS provisions with the proposals, with more detailed analysis in the appendix.

Breakdown of Corporate Engagement Per Topic

Linear Reduction Factor (LRF) update

• The European Commission (EC) proposes to lower the LRF from 4.4% to 3.7% for the period 2030-2035, dropping to 1.7% from 2036 onwards. This aligns with the positions of industry actors arguing to weaken the ETS, such as Eurofer, BusinessEurope, and BASF, who advocated for a slower cap reduction. Demands from industry actors supporting an ambitious ETS reform (for example SSAB) to maintain the planned LRF until at least 2035 were absent from the proposal.
• The leaked draft report by rapporteur MEP Peter Liese (EPP) further shifts the LRF toward the asks of industry actors opposing an ambitious ETS reform, lowering the LRF before 2035, while suggesting a higher LRF than the Commission after 2035 but simultaneously removing the international credits safeguard.

Free Allocation (FA) Phase-out for CBAM sectors

• The current ETS trajectory planned a gradual phase-out of free allowances for CBAM sectors that would reach zero in 2034. In the lead-up to the Commission proposal, all of the industry actors arguing to weaken the ETS covered in this brief advocated for a slower phase-out (including BASF, Cefic, BusinessEurope and ArcelorMittal), while industry actors supporting an ambitious ETS advocated to maintain the current trajectory (including SSAB, Ecocem and CLG Europe). The Commission proposal reflects the call to weaken the trajectory and postpones the full phase-out from 2034 to 2038.
• The leaked draft report by rapporteur MEP Peter Liese (EPP) further shifts the CBAM factors toward the asks of industry actors opposing an ambitious reform, despite introducing an option to revert to the original trajectory if the Commission assesses a sector to be at low risk of carbon leakage.
• Update: The official draft report differs from the leaked draft report on this point. The official draft states that if the assessment indicates that a sector is at low risk of carbon leakage, the CBAM factor can be reverted to a 'different CBAM factor' set by the Commission.

Free Allocation Conditionalities

• The current ETS legislation includes only limited conditionalities on free allocation for companies (e.g. implementing energy efficiency measures). The Commission’s proposal now introduces explicit requirements to invest in decarbonization in the EU for companies to receive free allowances.
• This proposal, and the leaked draft report of rapporteur MEP Peter Liese (EPP), largely aligns with the advocacy in favour of conditionalities by industry actors supporting an ambitious ETS (including Business for CBAM Coalition, Eurelectric and Iberdrola).

Market Stability Reserve (MSR)

• In a separate proposal in April 2026, the Commission proposed to remove the invalidation mechanism for surplus allowances in the MSR. This aligned with the demand voiced by all industry actors arguing to weaken the ETS covered in this brief, such as Cefic, BusinessEurope and ExxonMobile.
• The revision of the invalidation clause is not part of the leaked draft report of rapporteur MEP Peter Liese (EPP); However, on September 10th, the Parliament’s ENVI Committee rejected the Commission proposal to cancel the invalidation clause, reflecting other industry support for the mechanism, including Business for CBAM Coalition, Ecocem and Iberdrola.

Domestic Carbon Dioxide Removals (CDR) integration

• The Commission proposal introduces domestic CDR in the ETS and foresees 250m tonnes of Direct Air Carbon Capture and Storage (DACCS) and Biogenic Carbon Capture and Storage (BioCCS) credits, which would be bought with ETS allowances released between 2031 and 2040. The proposal falls between the advocacy positions of industry actors that have supported an ambitious ETS, which have called for an extremely cautious approach to integrating CDR (including CLG Europe, SSAB and Iberdrola) and some industry actors opposing an ambitious ETS reform, which have called for a full inclusion of not only carbon removals (including Cefic and BASF), but also Carbon Capture and Utilization (CCU).
• The leaked draft report of rapporteur MEP Peter Liese (EPP) goes further than the Commission’s proposal by introducing Biochar to the list of allowed technologies.

International Carbon Credits integration

• The Commission proposal introduces limited use of up to 260 million international credits to increase the total number of allowances in the ETS after 2035. This aligns with industry voices opposing an ambitious ETS reform (including Cefic, BusinessEurope and BASF) that called for the inclusion of international credits, while industry voices supporting an ambitious ETS clearly advocated against their inclusion (for example Business for CBAM coalition, Eurelectric and SSAB). However, the Commission also introduced a safeguard that would increase the LRF if availability of high-quality international credits proves insufficient.
• The leaked draft report by rapporteur MEP Peter Liese (EPP) further shifts the use of international credits in the ETS toward the asks of industry opposing an ambitious ETS, by removing this LRF safeguard as well as the qualifier “up to” which would allow fewer than 260 million credits to be integrated.