On 17 July 2026, the European Commission presented its long-awaited proposal for the revision of the EU Emissions Trading System (ETS). The proposal establishes the legal framework for Phase 5 of the system, which runs from 2031 to 2040, and aligns with the European goal of reducing net greenhouse gas emissions by 90 percent by 2040 compared to 1990.
Part of the proposal is a new mechanism that gives permanent carbon removal a direct place for the first time within the world's largest mandatory Emissions Trading System. The Commission acts as the central purchasing party in this process: between 2031 and 2040, an additional 250 million emission allowances will be auctioned, with a margin of 10 million tonnes. The proceeds from these auctions will be used to purchase an equal amount of permanent carbon removal, rising to 48 million tonnes per year in 2040.
BioCCS will be given a place, biochar not for the time being.
In the first phase of this purchasing mechanism, only two techniques are eligible: BioCCS (bioenergy with carbon capture and storage) and DACCS (direct aerial capture with storage), both certified under the European CRCF Regulation on carbon removal and carbon farming. Less developed techniques such as biochar remain excluded at the start of the mechanism, pending a later review.
At an estimated carbon price of 200 euros per ton, the purchase of 250 million tonnes over the entire period represents a compliance market of an estimated 50 billion euros. Additionally, from 2036 onwards, a limited volume of international credits may be deployed, up to a maximum of 260 million tonnes between 2036 and 2040, subject to an interim review in 2033.
Strong signal for the carbon removal sector
Support for the new purchasing mechanism is predominantly positive from the carbon removal sector. Codie Rossi, Senior Policy Officer for Carbon Management at the Clean Air Task Force, calls the proposal a major milestone that gives the sector the strongest demand signal ever. According to her, the setup ensures that purchasing begins years before the actual delivery of tonnes, with a clear legal rule that emission space only exists where there is actual removal to offset it.
Moreover, a proposal published simultaneously increases the amount of free emission allowances under the ETS benchmarks for heat and fuel for the period 2026–2030, accounting for approximately 80 million additional allowances for energy-intensive industries. Oil and gas activities are excluded from this and remain subject to the existing phase-out rate. On the same day, the Commission also presented an Electrification Action Plan, with a target of 46 percent electricity in European energy consumption by 2040.
The proposal must now go through intensive trilogue negotiations between the European Parliament and the Council, with intended implementation in 2028. For the BioCCS sector, including Dutch and Benelux initiatives, the long-term prospect of a funded market offers a solid basis for investing in capacity building in the coming years.
Source reference:
- International Carbon Action Partnership (ICAP) – “EU Commission publishes EU ETS review proposal” – https://icapcarbonaction.com/en/news/eu-commission-publishes-eu-ets-review-proposal
- Carbon Herald — “EU Proposes Historic €50B ETS Carbon Removal Compliance Market” – https://carbonherald.com/eu-proposes-historic-e50b-ets-carbon-removal-compliance-market/
- EU News – “Electrification: green light, but EU plan sparks division over the ETS” (July 17, 2026)
Photo by ALEXANDRE LALLEMAND on Unsplash
