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On 17 July 2026, the European Commission issued a legislative proposal to overhaul the EU ETS for the period 2031–2040 – the world’s largest carbon market. Although heavily criticised for watering down the ETS, there is one element that deserves to be discussed in detail about the reform: the possibility for the EU to purchase up to 260 million high-quality international credits between 2036 and 2040, generated under Article 6 of the Paris Agreement, subject to a cap of 5% of the EU’s net emissions in 1990. The stated aim is to ease the pressure on domestic decarbonisation in the most vulnerable sectors (steel, cement and chemicals) by granting them a less steep reduction trajectory.

The diplomatic opportunity

According to Darius Sultani, a PhD researcher at the Potsdam Institute for Climate Impact Research, the reform opens up a funding channel to countries struggling to intensify their climate policies, while also creating an opportunity for climate diplomacy for the EU. Tirivanhu Muhwati, deputy director of the carbon markets authority at Zimbabwe’s Ministry of the Environment, interviewed by Clean Energy Wire, shares this view and has welcomed the reform: according to Muhwati, “the EU is the largest source” of the demand necessary to get the international carbon market off the ground.

Zimbabwe, which already has experience – not without issues regarding quality and the actual impact on local communities – with the voluntary market through the Kariba REDD+ project, hopes to benefit from the reform thanks to the progress made in formalising its own emissions trading system. “Taking regional principles into consideration, such as the African principles for integrity and equity in carbon markets, can help contextualise the EU’s engagement in carbon markets with the [African] continent,” said Muhwati.

Europe’s energy-intensive industry, long complaining about tight deadlines and insufficient funding for the necessary investments, also regards the measure as a breath of fresh air. The chemical industry federation CEFIC welcomed the inclusion of international credits, while the IETA (International Emissions Trading Association) described the overall package as “a significant evolution” of the system.

The opposition: “A step back”

The proposal has, however, already sparked a political clash that goes far beyond the technicalities of the mechanism. A centre-left coalition is taking shape in the European Parliament, determined to oppose the inclusion of international credits and removals in the ETS, except under very stringent environmental conditions. Mohammed Chahim, a negotiator for the S&D Group, has bluntly described the measure as “a step backwards”, a form of expediency that outsources Europe’s climate ambition by penalising precisely those industries that have invested early in decarbonisation.

The NGO Carbon Market Watch went further, accusing the EU of shifting its climate responsibility onto what it described as “dodgy offsets”, credits of dubious reliability. A technical analysis published by Mondaq highlights a real timing issue with the mechanism, as Article 6 credit authorisations take place now, but the corresponding accounting adjustments between countries cannot be verified until the NDC cycles close in 2030 or 2035 – well after the annual deadlines for CBAM obligations. The result is likely to be a double standard: European operators will not be able to use international credits to meet their ETS obligations, while non-EU operators subject to CBAM might be able to do so, if permitted by their respective national schemes.

It is not an isolated issue. As early as April 2026, a coalition of first-generation clean-tech companies had called for international credits to be excluded from both the ETS and the CBAM, fearing a dilution of the price signal that has so far rewarded those who invested early in the transition. Furthermore, the Parliament’s ENVI rapporteur had already branded the discussion on this issue during the CBAM review as “premature and counterproductive”, to the extent that the Council’s compromise text of 29 April 2026 had removed all explicit references to Article 6.

A compromise certainly needs to be found: the EU’s top climate official had publicly ruled out, during a panel discussion, the possibility that the Union would use international credits as a compliance tool within its own ETS. The proposal of 17 July reversed that position. It is a sign of how much pressure from energy-intensive industries, coupled with the broader geopolitical context, has rapidly shifted the internal balance within the Commission.

What is happening in the meantime

The reform is not limited to international credits. The same package of 17 July introduces an increase in the free allowances allocated through the heating and fuel benchmarks for the period 2026–2030, making around 80 million additional allowances available to energy-intensive industries (excluding oil and gas, which remain subject to the current adjustment rate).

Between 2021 and 2025, free allocation covered an average of 85% of emissions from these sectors; for 2026–2030, the Commission forecasts an average of 78%. From 2031, 80% of free allowances will be conditional upon the publication of investment plans for decarbonisation, and the remaining 20% will be granted only after verification of an actual reduction in emissions. Companies that relocate outside the EU will have to return the allowances they have received.

The Commission has committed to reviewing the state of the allowance market by January 2033, with the possibility of adjusting the emissions reduction trajectory based on its findings. It is this safeguard clause that both critics and supporters of the reform will be watching most closely in the coming years of negotiations before the reform comes into force.

Cover: Harare, capital of Zimbabwe, photo by Tatenda Mapigoti, Unsplash