Unpacking the EU Emissions Trading System (EU ETS) review

The European Commission published its EU ETS review proposal on 17 July 2026, setting the framework for Phase 5 of the system covering 2031 to 2040. The proposal aligns the ETS with the EU's net 90% emissions reduction target for 2040 and takes effect from 2028, though it remains subject to change as it moves through the legislative process. This report unpacks what has changed, what it means for carbon prices, and whether the new conditional free allocation mechanism is enough to shift the investment calculus for industrial decarbonisation.