Four emissions trading scheme changes with implications for E&P firms

As we have repeatedly emphasised in 2026, carbon policy has become a key factor in commercial decision making for oil and gas exploration and production (E&P). Many E&P firms are required to comply with the Emissions Trading Schemes (ETS) in place in different jurisdictions around the world. Keeping up with proposed and implemented changes to these schemes is therefore vital. 

Our research analysts have been closely tracking ETS globally throughout Q3 2026. Read on to get our take on the implications of the European Commission’s proposed changes to the EU ETS, or fill out the form to download a complimentary insight with views on this and three other policy developments destined to have a material impact for E&P firms globally.  

The European Commission ETS review aims to trade pressures for incentives 

Aiming for implementation in 2028, the European Union ETS review looks to align carbon market rules with the EU’s overall target of 90% net emissions reduction by 2040 (versus 1990 levels). 

Key proposals include: 

• Cap phase-out and Linear Reduction Factor (LRF): Downward adjustment of the fixed annual percentage rate at which the total cap on greenhouse gas emissions decreases 

• Market Stability Reserve (MSR): Removal of the invalidation mechanism, cutting the intake rate and lowering the buffer for the mechanism to balance supply and demand of emissions allowances 

• Free allocation and carbon leakage: Changing the timelines for free allocation phase-out by sector based on level of carbon leakage risk 

• Sectoral expansion: Changing the rules for aviation, maritime and waste sectors to cover more cases 

• Carbon removals, international offsets and carbon capture and utilisation (CCU) accounting:  

• Allowances for centralised purchase of domestic carbon dioxide removal (CDR) 

• Allowances for the purchase of offsets from non-EU countries 

• Changes to allow embedded emissions in non-permanent CCU products to be accounted for at release rather than capture  

• Revenue: At least 50% of ETS auction revenues to be directed towards decarbonisation 

• Industrial Decarbonisation Bank (IDB) Fund: Financing initially to be “first-come, first-served” to unlock ready-to-go projects, then competitive bidding that prioritises lowest abatement cost 

• International cooperation: Non-EU countries can opt in to price aviation and maritime emissions on routes and split revenue with the EU 

Our take:  

• Market fundamentals: If adopted, the proposals will lower the risk of extreme end-game price spikes without eliminating the bulk of emissions reduction obligations. The long-term price trajectory will be more predictable albeit lower, but the targeted financial help should compensate. 

• Accelerating investment: Measures signal that capital is available but must be actively pursued and progress demonstrated. Support for individual companies will be based on the credibility of their decarbonisation plans. The IDB could push hard-to-abate sectors towards built capacity significantly earlier. 

• Global implications: The proposal points to a more collaborative role for the EU in global carbon markets. Non-EU companies stand to benefit via international credit mechanisms from 2036, while the proposal also signals willingness to help non-EU countries build carbon pricing capacity. The reform also raises questions for the EU’s Carbon Border Adjustment Mechanism (CBAM). 

Get more insight 

Remember to fill out the form at the top of the page to download the complimentary insight, which covers three further key ETS policy developments: 

• The EU’s proposed integration path for carbon removal and international carbon offsets 

• Australia’s review of its Safeguard Mechanism to deliver emissions reductions for 2031-2035 

• The introduction of California and Québec’s revamped cap-and-invest programmes for emissions