On 15 April 2025, the European Commission (“the Commission”) launched a public consultation on a review of Directive 2003/87/EC establishing a system for greenhouse gas emission allowance trading within the Union (ETS Directive) and Decision (EU) 2015/1814 concerning the establishment and operation of a market stability reserve for the Union greenhouse gas emission trading scheme (MSR Decision). By way of background, the ETS Directive introduces a cap on emissions from the energy, industry, maritime and aviation sectors in Europe (“cap and trade” principle); the MSR removes allowances from EU ETS auction volumes and adds them to the reserve when the amount of allowances in the market exceeds a fixed threshold. Companies falling within the scope of the ETS Directive obligations must monitor and report their emissions on an annual basis and surrender enough allowances to fully account for their emissions.

The current consultation is dictated by the fact that both the ETS Directive and the MSR Decision are scheduled for review; in line with the “evaluate first” principle the relevant legislation must be evaluated before being subject to review. The consultation consists of two substantive parts:

  • Assessment of past performance: this part focusses on backward-looking questions relevant for the evaluation of certain aspects of the ETS.

The Commission is looking for stakeholders’ views on a variety of issues, including the effectiveness and efficiency of the ETS system to date, as well as its relevance to addressing the current and future EU objectives in the area of climate change, and coherence between the various initiatives. The consultation is also looking at the EU added value, i.e. whether the results of the ETS and the MSR operation could have been achieved without EU intervention, i.e. via national actions by the Member States.

  • Assessment of possible future policy options: this part focusses on forward-looking questions.

The Commission is putting forward a number of policy options for the purpose of the impact assessment, including on (a) geographical scope of ETS application to flights outside Europe, (b) changes to the ETS rules applicable to maritime transport, (c) the design of measures to address the risk of carbon leakage for emissions not covered by CBAM post 2030, (d) the parameters for the operation of the MSR in addition to other elements of the design of the MSR, (e) the potential inclusion of carbon removals into the ETS, (f) the treatment of the capture and use of carbon in non-permanent applications, (g) the inclusion of municipal waste incineration installations and of other waste management processes, (h) the potential inclusion of installations with total rated thermal capacity below 20MW into the ETS and (i) the potential linkage of the ETS market with other international carbon markets.

The consultation is open until 8 July 2025. Following that, the Commission is expected to put forward a legislative proposal in Q3 2026.