What the revision of the EU ETS means for carbon credits, removals, aviation and maritime
The European Commission's July 2026 proposal to revise the EU Emissions Trading System for the post-2030 period marks a pivotal moment for compliance carbon markets. In the face of geopolitical pressure, competitiveness, affordability, and energy security concerns, the EU is holding firm on its ambitious climate targets, with the help of environmental market instruments.
Although the EU institutions and Member States must still agree on details – likely in early 2027 – the direction of travel is now clear, and its impact on businesses and environmental markets is significant. To deliver on its 2040 and 2050 climate targets, the EU is looking to invest significant ETS revenues in domestic carbon removals, expand international carbon credits, and support aviation and maritime decarbonization. The EU has also recommitted to CORSIA as a mechanism to offset international aviation emissions, providing much-needed clarity that will help scale the market for CORSIA-eligible carbon credits.
Key signals:
- The proposal reinforces CORSIA’s political viability: A carefully balanced compromise extends the scope of the ETS from 2029, but only to certain long-haul flights, avoiding controversy over routes to North America and most of Asia.
- Integration of permanent removals into the ETS: The proposal creates an EU-level purchasing route for up to 250 Mt of permanent removals between 2031 and 2040, initially focused on domestic BioCCS (Bioenergy Carbon Capture and Storage) and DACCS (Direct Air Capture and Storage). The future inclusion of highly durable nature-based removals, and of direct purchasing of removals by companies, will be considered no later than 2034.
- International credits get a defined but capped role: Up to 260 Mt of high-quality international credits could be used between 2036 and 2040 through a centralized purchasing facility, subject to a pilot period beginning in 2031 and a 2033 market assessment.
- Maritime transition receives new attention: A wider ETS scope for smaller vessels plus a proposed support mechanism for alternative propulsion could help accelerate cleaner marine fuels such as Bio-LNG.
International credits are back, but tightly controlled
The EU plans to meet up to 5% of its 2040 target with international carbon credits. In line with this vision, the proposal allows 260 Mt of high-quality international credits to count toward the ETS emissions cap between 2036 and 2040. This volume represents 2% of the overall reduction target, in proportion with the ETS’ coverage of approx. 40% of overall EU emissions.
As the ETS cap tightens toward 2040, international credits give EU industry much-needed flexibility while also funding climate mitigation outside the EU. A central EU purchasing facility, funded by ETS auction revenues, will vet and procure credits, keeping quality control transparent and in public hands. Following a pilot period starting in 2031, the EU will determine in 2033 whether the market is ready and whether available credits meet its strict quality criteria. For developers of Article 6 international credits, the proposal gives more confidence that EU demand will pick up after 2035. However, some uncertainty remains, as the exact quality criteria will be developed separately over the next one to two years, and the 2033 market assessment is a key milestone toward actual demand.
Aviation: EU strengthens CORSIA, partially expands the ETS, and adds new SAF funding
The proposal strikes a careful balance on aviation decarbonization. Starting in 2029, the EU ETS’s geographic scope is set to expand to certain long-haul flights, alongside increased funding for sustainable aviation fuel (SAF). Rather than fully expanding the ETS geographically, the proposal takes a middle path: it acknowledges that CORSIA does not yet cover sufficient international aviation emissions, but avoids undermining CORSIA’s political viability by holding back from full expansion. At this stage, the EU has also backed away from imposing quality requirements for EU airlines that are stricter than CORSIA's general standards — meaning cookstove and HFLD (High Forest, Low Deforestation) credits remain accepted. This will strengthen the international offsetting mechanism over time.
To prevent airlines from being charged twice, the proposal includes a mechanism to offset CORSIA costs against EU ETS obligations. It also significantly boosts ETS-derived funding for EU-produced SAF.
Carbon removals enter the EU ETS, and permanence becomes a key factor
The proposed integration of permanent domestic removals into the ETS is big news for the still nascent carbon removals market. The proposal would use ETS revenues to finance centralized purchases of permanent carbon removals beginning in 2031. At first, only BioCCS and DACCS certified under the EU Carbon Removals and Carbon Farming Regulation (CRCF) will be eligible. By 2034, the EU will assess whether to expand eligibility to other removal types – including highly durable nature-based removals – that can guarantee storage for centuries.
This regulated demand stream, financed by ETS revenues, is a milestone for a market that has so far depended largely on voluntary purchases. A stable, EU-backed procurement mechanism with a specific target volume will send a stronger long-term demand signal, giving project developers and investors more confidence to build their business models.
The proposal also signals a stronger focus on permanence — durable storage, monitored reversal risk, and manageable liability — backed by a planned permanence fund that could extend demand to more project types, including nature-based solutions. However, the EU won't assess their inclusion until 2034, risking a near-decade delay.
Maritime: a wider net and a funding opportunity for cleaner fuels
Maritime is one of the sectors where the ETS is expanding its reach, which is relevant for companies working on alternative marine fuels. From 2028, smaller vessels (400–5,000 gross tonnage) would join the EU ETS, closing a gap for feeder and short-sea shipping. In parallel, the proposed Sustainable Maritime Alternative Propulsion (SMAP) mechanism will recycle ETS revenues to help close the cost gap between conventional and alternative propulsion options, including marine fuels from biogas and advanced biofuels.
These fuels are commercially available today and can help vessel operators reduce lifecycle emissions before newer fuel pathways reach scale.
What it means for businesses
- EU heavy industry: International credits will ease pressure on the ETS cap as allowance levels tighten toward 2040. Companies with voluntary science-based targets may have more room to pursue voluntary climate action through the use of carbon credits, removals, and low-carbon fuels.
- Airlines and CORSIA-eligible credits: By avoiding a major political clash over the extension of the ETS vs CORSIA, the proposal supports rising airline demand for CORSIA credits through 2026 and 2027, ahead of the January 2028 compliance deadline. The EU’s decision to refrain from additional CORSIA eligibility criteria should also boost supply.
- Developers of Article 6 credits have line of sight on a significant medium-term market for high-quality credits in the post-2030 ETS. Additional EU guidance on specific requirements and quality criteria is still eagerly awaited as project development gears up.
- Carbon removal project developers: Companies can start preparing for post-2031 demand, with CRCF certification as a key priority. Projects with real operational data and injection experience – not just plans – are likely to be better positioned once procurement criteria become clearer. Few organizations developing BECCS projects are already operating commercial facilities with active CO₂ injection. As policymakers move from discussing removals in principle to defining procurement and eligibility criteria, demonstrated performance could become a key differentiator.
- For maritime and fuel-market participants, the proposal reinforces the need for early engagement in policy design. How SMAP, delegated acts, and fuel eligibility are defined will determine whether existing low-carbon fuel pathways receive meaningful support or whether the focus narrows too quickly to technologies that are not yet commercially scalable.
What happens next
The proposal now enters a phase of negotiations between the EU Parliament, Member States, and the Commission, with a final version expected in 2027. These negotiations may still bring changes. Once adopted, many implementation details are likely to follow through additional administrative rules, including key guidance on quality criteria for international credits and on the eligibility of different types of permanent removals.
Many of these changes won’t take effect immediately, and demand for international carbon credits and carbon removals is still a few years away. But delivering removals like BECCS by 2031 requires starting project development now — so an early, credible buyer signal is indispensable, even if actual demand is still years off.
The proposal highlights the importance of reinvesting ETS revenues back into Europe’s own decarbonization efforts – whether in aviation, maritime, or the scaling of domestic removals. It has made it clear that the EU recognizes the importance of providing investment signals for these decarbonization levers, and is serious about ensuring that EU funding will be available to finance them.