On a humid day in February, a small group of workers huddled in front of a large solar panel factory inside Thailand’s biggest manufacturing hub in the eastern coastal province of Chonburi, home to some of the world’s top solar panel-producing companies.
The men and women, mostly in their twenties, all hoped to land a job on a production line assembling solar cells into panels destined for export.
They knew they may not hold the job for very long after reading complaints of former employees on social media about work being regularly cut when orders were low.
But the company promised fair pay and, needing work, they were willing to take the risk.
That risk is growing, as Thailand’s solar industry has become caught in an escalating trade war between the US and China, with Thai solar workers paying the price.
Large Chinese companies dominate Thailand’s solar manufacturing industry, which produces solar cells and panels for export to the US market.
But as Washington erects trade barriers to protect its homegrown solar sector from a rising tide of cheap Chinese imports, Thailand’s industry is being squeezed.
Solar manufacturers in Southeast Asia’s second-largest economy that rely heavily on Chinese components are now facing nearly 400% tariffs to export their products to the US.
Analysts say the tariffs threaten to hurt Thailand’s manufacturing sector and its workers, and could have a knock-on impact on solar rollout in the country. But the changing trade landscape also creates an opportunity for producers to find new markets, including by accelerating solar deployment and the energy transition across the Southeast Asian region.
The heat of the solar trade war
For more than a decade, the US has waged a tariff war on growing imports of cheap Chinese solar panels, which it says harm its domestic industry.
China’s mass production of solar cells and modules has enabled the expansion of clean energy globally. The cost of solar panels has declined by 90% in the past decade. But China’s subsidised and cut-price solar production has also led to accusations of unfair trade practices.
In response, Chinese manufacturers relocated the final production stages to neighbouring Asian countries in an attempt to avoid the US import tax, turning Southeast Asia into a major solar-panel assembly hub and export base.
As Chinese exports of solar components to Vietnam, Thailand, Malaysia and Cambodia boomed, so did US imports of Southeast Asian solar panels.
By 2023, 80% of US solar module imports came from those four countries. Nearly a quarter came from Thailand alone.
But in recent months, several Chinese manufacturers with factories in Southeast Asia suspended some of their operations in the region, after the US announced a string of antidumping duties on solar imports from the four countries in a bid to close the loophole.
Thousands working in Thailand’s solar factories – most of whom had left the agricultural north of the county to seek better-paid employment in an industry which promised decent jobs – were put on leave or suddenly dismissed.
Climate Home News analysed local media reports and social media posts relating to worker dismissals at three leading solar manufacturers with factories in the Eastern Economic Corridor, the country’s largest manufacturing zone: Chinese companies Runergy and Trina Solar, one of the world’s largest solar PV manufacturing firms, and Canadian Solar, which has long conducted most of its manufacturing operations in China.
We found that close to 8,000 full-time staff and subcontracted workers were either temporarily or permanently dismissed in 2024. Over that time, US officials investigated a complaint from American manufacturers that companies with factories in Southeast Asia were dumping subsidised and unfairly cheap products on the US market.
An industry losing its grip on its biggest export market
Last month, US trade officials unveiled hefty tariffs of at least 375% on imports of solar cells from Thailand.
The US International Trade Commission, a bi-partisan government agency, is due to make a final decision about the tariffs in June. In private, analysts say they are likely to be approved.
The Institute for Energy Economics and Financial Analysis (IEEFA) recently found that any price increases beyond 250% would make most Southeast Asian imports “untenable”.
“Any company in any country where the combined tariffs is greater than 250% will likely see their orders decline or get cancelled,” Grant Hauber, of IEEFA, told Climate Home.
Over the past year, US officials’ tariff deliberations rocked Thailand’s solar industry.
“There has been a broad suspension of operations among Chinese companies in Southeast Asia, including Thailand, with many closures likely to be permanent,” said Linxiao Zhu, a research fellow at the Oxford Institute for Energy Studies.
“The region risks losing a significant share of its solar manufacturing capacity due to the loss of access to the US market.”
“Thailand’s solar manufacturing industry faces some serious challenges,” agreed Forbes Chanthorn, BloombergNEF’s Thailand energy transition analyst based in Singapore. “It is losing its grip on some of its biggest export markets without any short-term alternatives in sight.”
And the situation could go from bad to worse as US President Donald Trump threatens an additional 37% import tariff on all goods from Thailand – one of the highest rates in Washington’s planned universal tariff onslaught, now paused until June. If applied, this would push the tariffs on Thailand’s solar cells up to 426%.
In an interview, Charuwan Phipatana-Phuttapanta, a solar expert at Thailand’s energy ministry, acknowledged that the tariffs will impact employment in the country’s solar industry.
Workers fall victim to tariffs
Spanning three provinces on Thailand’s eastern coast, the Eastern Economic Corridor (EEC) is key to the government’s plan to transform the area into an economic powerhouse.
Enticed by generous tax breaks and cheap labour, international companies have flocked here to manufacture everything from air conditioners to batteries for electric vehicles and solar panels for the regional and global markets.
Several leading Chinese solar manufacturing companies set up shop in the EEC nearly a decade ago. Soon, Thailand’s solar exports to the US soared.
But in June 2024, a two-year US tariff waiver on solar products from Southeast Asia – introduced by Joe Biden to boost solar deployment in the country – came to an end. Companies in the region importing silicon wafers from China to make solar cells for export to the US became subject to tariffs.
In the days that followed, several manufacturers slowed down or suspended operations, letting go of staff to adjust to the new tax regime, Amnuay Ngamnet, director of Rayong Labour Protection and Welfare office, the labour ministry’s local representative, told Climate Home.
In Rayong alone, the most southern of the EEC’s three provinces, 3,200 full-time workers at five solar factories were put on leave between 2022-2024, according to official data.
Videos posted on TikTok in recent weeks show deserted parking lots and unusually quiet grounds around some solar factories.
“No matter how good you are, if life stumbles, you cannot succeed. Goodbye,” one solar worker posted on the social media platform with a photo of a dismissal letter.
Amnat (whose name has been changed because of concerns that speaking to the media might affect his job prospects) was among thousands affected.
Like many others, the 39-year-old left his hometown in the agricultural northeastern region in 2022 to find a better-paid job at a solar plant in the EEC.
“It seemed like a promising industry. I hoped to spend years there,” Amnat told Climate Home over the phone. “But it didn’t turn out that way.”
Amnat worked as a subcontractor at a few Chinese solar factories, eventually landing a staff position at Runergy, which manufactures solar cells and modules.
He worked six days a week and earned approximately 25,000 baht ($745) a month, way above the average income for unskilled workers.
But in October 2024, he was dismissed along with “almost all of the employees” at the factory, according to local media reports. Amnat told Climate Home the retrenchment affected nearly 3,000 workers.
Runergy did not respond to repeated requests for comment.
The same month, Runergy opened its first module manufacturing plant in the US to keep supplying the American market – one of a number of solar companies hoping to benefit from tax credits under the Inflation Reduction Act (IRA).
As a permanent employee, Amnat was compensated 75% of his monthly wage, a lifeline during the three months it took him to find another job. But others were not so lucky.
Thousands of workers hired as subcontractors and benefiting from fewer rights were left without work or pay overnight as companies suspended some of their operations.
At risk of labour rights violations
“After leaving the solar company, my girlfriend was left unemployed for two months. It was difficult for us,” a TikTok user who had complained about the dismissals on social media, told Climate Home. The subcontracting company employing her made her sign a dismissal letter, absolving it of paying the compensation she was entitled to, he explained.
Bunyuen Sukmai, a local labour lawyer and rights activist, told Climate Home “most workers are not aware that the practice violates their rights” despite being routinely deployed.
In the workers’ housing estate, a few kilometres outside the industrial zone, the offices of subcontracting firms are flanked by hair salons and restaurants. A steady stream of job-seekers fill in application forms and scan QR codes to follow job announcements on social media.
“Subcontractors are usually the first to be affected by industry changes. They usually receive lower benefits and are most at risk of having their rights violated,” said Sukmai. But legal cases over unfair dismissal are rare as few workers have the resources to go down the judicial route, he added.
A representative of Trina Solar in Thailand declined to respond to questions. Canadian Solar did not respond to Climate Home’s repeated requests for comment.
However, in a letter dated June 2024 and shared on social media, Canadian Solar said it had paused operations at one of its factories to make changes to its production line and improve machinery. “Due to the current economic conditions and trade competition, the company needs to adjust to the market situation and the direction of the domestic and international economy,” it said.
It added that it had “great confidence in the potential and economic conditions of Thailand” where it intended to continue operating.
In search of new markets
Some large Chinese panel-makers have already started setting up production lines in Indonesia and Laos, which are not currently affected by the US solar import duties.
The Middle East has also emerged as a growing destination for Chinese solar investments, including for the production of key solar components such as polysilicon ingots and wafers.
“These efforts are designed to forge a supply chain completely outside of China serving the Middle East, the US, and other markets that may be subject to tariff risks,” Zhu wrote in a recent report for The Oxford Institute for Energy Studies.
To continue operating in Thailand, analysts say large solar manufacturers will need to seek new export markets outside of the US.
In the short-term, exports could be redirected to the European Union and India. The Thai government is racing to finalise a free-trade deal with the EU, where demand growth for solar equipment may be stronger than in the US, Laura Schwartz, a senior Asia analyst at risk intelligence company Verisk Maplecroft, told Climate Home.
“However, over half of China’s solar cell and module exports already go to Europe, so Thai exports would face stiff competition,” said Schwartz. And Indian solar developers will have to use locally made solar cells in government projects from June 2026.
But the tariffs could also mark “a turning point” for Southeast Asia’s solar industry, which could focus on supplying emerging markets in Africa and South America, and urgently accelerate the region’s own solar deployment, said Christina Ng, director of the Energy Shift Institute, a think-tank focused on Asia’s energy transition.
Thailand is dependent on gas for electricity generation but the government has set out plans for 51% of its electricity to come from renewables by 2037, with most of the additional renewable power expected from solar. Only around 3% of Thailand’s electricity currently comes from solar.
Thai companies assembling solar modules in the country are already calling for more incentives to expand a homegrown supply chain.
Krit Pornpilailuck, CEO of Solar PPM, fears Chinese solar manufacturers that can’t export their goods to the US “will flood the Southeast Asian market and plunge the price” of modules.
To protect the industry, Pornpilailak wants to see more support for Thai manufacturers to produce solar cells and other upstream components domestically.
“Thailand has more than six million tonnes of solar-grade quartz reserves that could be used to produce polysilicon – the key ingredient to produce solar wafers,” said Phipatana-Phuttapanta, the government’s solar expert. Although developing the resources would require “technical expertise and high investment”, she added.
“This is a chance for [manufacturers] to move up the value chain – from being seen as mainly low-cost assemblers to becoming leaders in more advanced clean energy technologies,” said Ng. “If the region takes this moment seriously and diversifies, it won’t just weather the disruption; it will emerge more resilient and competitive.”
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Solar squeeze: US tariffs threaten panel production and jobs in Thailand
Low-income Indian workers, many of them migrants from rural areas hit by climate change, are paying for worsening extreme heat through lost working days and health complications, with the cost equivalent to 2% of national GDP per year, new research shows.
The International Institute of Environment and Development (IIED), a London-based think-tank, worked with local organisations to survey around 540 households of informal workers in three Indian cities: Ajmer, Delhi and Agra. Most had migrated from rural areas to find work in industries such as construction, brick-making, garment manufacturing and food packaging.
The survey found them struggling through long working days with little access to shade, cooling, rest or water, as well as few toilets for women. And even when they go home, many live in makeshift shelters or airless cramped rooms with barely a single fan, bringing almost no respite.
Outdoor workers are losing about 24 days of work a year due to heat, costing them nearly a tenth of their annual earnings, while indoor workers sacrifice roughly 15 days. On top of losing income, they are also bearing the cost of health problems like heat exhaustion, psychological stress and kidney damage brought on by repeated dehydration.
If the survey’s findings are extrapolated to a national level, the IIED researchers estimate that the decline in productivity and effects of kidney disease combined add up to lost wages of $78 billion each year.
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Vishram Meena, 45, from Alwar in Rajasthan, has worked on construction sites in Ajmer for more than a decade, toiling for 10 to 12 hours a day carrying materials and mixing cement in the full sun.
In May 2024, on one of the hottest days, he collapsed after feeling dizzy and suffering a nosebleed. His wife and colleagues managed to get him to hospital where he was diagnosed with heat stroke. He has since returned to the same building work because the family needs the money.
“I went back because what else could I do? We are not machines. We are human beings. The heat is killing us slowly,” he was quoted as saying in a report on the survey’s findings.
“Victorian-era” conditions
Ritu Bharadwaj, IIED’s director of climate resilience, finance and loss and damage, described some of the stories from workers about their experiences of extreme heat as “genuinely horrifying”.
Kusum, a tailor at a garment manufacturing and export unit in Kapashera, Delhi, recounted how the machines for ironing finished garments are in the same tiny room where workers are making the clothes, with steam and hot air building up through her shift.
Fans are too far apart to move the air and nothing has changed in over a decade, she said, adding that “in summer, the unit feels like a furnace”.
“These are Victorian-era working conditions and they’re completely unacceptable in the 21st century,” said Bharadwaj. She called for stepped-up social protection from the government to pay people for days they are unable work due to heat, as well as micro-insurance schemes with payouts triggered by temperature measurements.
This money would help families buy food and pay medical bills when their income dips if they fall ill or cannot work their usual hours due to soaring temperatures.
Climate change-driven heatwaves hit Delhi’s Red Fort market traders
The aim of the IIED study, Bharadwaj added, is to get policy-makers’ attention by showing the scale of damage extreme heat is doing to India’s GDP in an economy whose growth relies on service-led industries. “If the workers within them start falling sick, you know it’s the economic growth which is going to get impacted,” she told a webinar to present the research.
“Whether [policymakers] care about the workers or not, at least they would care about the GDP, and therefore then invest in their care,” she explained.
Labour code leaves out heat
However, Bharadwaj noted that a 2026 reform to India’s labour law bringing a range of regulations together in one code does not include heat-related protections for workers and only applies to businesses above a certain size. She urged the government to introduce a temperature threshold above which all workers would be able to stop their activities.
IIED and its partners have also carried out a similar study in Bangladesh which will be published later this month, showing that extreme heat is costing its workforce the equivalent of nearly 1.4% of GDP.
Shakirul Islam, chairperson of the Ovibashi Karmi Unnayan Program (OKUP) in Bangladesh, said the government had introduced stricter safety policies for garment-making companies after the Rana Plaza complex collapsed in 2013. But, he said, these rules are rarely followed by manufacturers, especially at the level of smaller subcontractors.
The workers’ welfare centres that do exist are open mainly during work hours so they are difficult to visit. Some companies also make saline water available for heat stress, which is no good for those with high blood pressure, he noted.
For Indian women workers, a just transition means surviving climate impacts with dignity
Archana Shukla Mukherjee, CEO of India’s Change Alliance, which also partnered with IIED on the survey, said it was time to hold both the government and businesses accountable for finding solutions to the intensifying problem of extreme heat’s effects on workers.
She said that employee state insurance schemes should identify heat stroke as an occupational disease while companies along the whole supply chain should start putting in place heat protection measures, including for informal workers and migrants.
If the tools and mechanisms available to help workers do not reach the most vulnerable and marginalised people, “then I think we are not doing something right,” she said.
The post Extreme heat costing India’s poorest workers 2% of GDP, survey finds appeared first on Climate Home News.
Extreme heat costing India’s poorest workers 2% of GDP, survey finds
A United Nations investigation into deep-sea mining firms will continue after the world’s top maritime court rejected their bid to suspend the inquiry triggered by a US-backed push to extract critical minerals from the ocean floor.
In two orders issued on Saturday, the International Tribunal for the Law of the Sea (ITLOS) declined to halt an inquiry launched by the International Seabed Authority (ISA) into whether permit holders, including Tonga Offshore Mining Ltd (TOML) and Nauru Ocean Resources Inc (NORI), have breached their obligations under UN exploration contracts.
The two companies are subsidiaries of Canadian firm The Metals Company (TMC), which earlier this year sought permits from the United States to commercially mine the deep seabed in an area already covered by its UN exploration licences, bypassing the ISA’s regulatory process.
The inquiry was opened after TMC’s move raised questions over whether its subsidiaries had complied with their contractual obligations to the ISA, which regulates mining in international waters under the UN Convention on the Law of the Sea. TOML and NORI sued the ISA last June for allegedly targeting them “in breach of due process” and without “good faith”.
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While allowing the inquiry to proceed, the court ordered the ISA to ensure the companies receive due process. Judges said the regulator must explain the factual and legal basis of its inquiry, clarify the procedures being followed and provide TOML and NORI with a meaningful opportunity to respond.
The companies seeks to mine an area called the Clarion-Clipperton Zone, which holds vast reserves of critical minerals like nickel, manganese and rare earths but is also home to a little-studied deep ocean ecosystem with thousands of unnamed species.
In response to the court’s ruling, the ISA welcomed the decision, saying the inquiry “remains in effect” and would continue “with due regard to all applicable legal requirements”.
Last week, during an annual meeting of its member governments, ISA secretary-general Leticia Carvalho said the resources in the ocean floor are “the common heritage of humankind” and upheld the agency’s role as “more important than ever”.
TMC also welcomed the court decision in a statement and claimed that judges ruled to “protect the rights of TMC subsidiaries”.
“Contractors like NORI and TOML, who have together spent hundreds of millions of dollars on the promise of a fair regulatory framework, should be informed of the factual and legal basis of any non-compliance inquiries, understand the procedure being applied, and receive a meaningful opportunity to respond,” said Gerard Barron, CEO of The Metals Company.
Environmental groups said the ruling allows scrutiny of the companies’ actions to continue.
Louisa Casson, deep-sea mining campaigner with Greenpeace, said the “entire litigation has been an egregious waste of time and money”, which was part of the industry’s “textbook distraction tactic” meant to delay the consequences of the inquiry.
“If the inquiry confirms that TMC’s subsidiaries are breaching their contracts, governments must send the strongest possible signal that complicity in unlawful deep sea mining will not be tolerated,” she said.
While investigation is still ongoing, NORI’s contract is set to expire this week and is up for review. Governments asked the ISA to report back and make “make appropriate recommendations” by the next ISA assembly, its main decision-making body set to take place next week from July 27 to 31.
The court ordered both the ISA and TMC to submit a report on how they complied with the ruling by August 31, and called on both to “cooperate and refrain from any action that might lead to
aggravating the dispute”.
The post Top maritime court rejects bid to halt UN deep-sea mining inquiry appeared first on Climate Home News.
Top maritime court rejects bid to halt UN deep-sea mining inquiry
The European Commission has put forward new plans to cut emissions under the EU carbon market more slowly, from 2031 onwards.
On 17 July, the commission presented its long-awaited proposal for reform of the EU’s Emissions Trading System (ETS).
It recommended a number of changes, including giving companies free allowances to cover their emissions for longer than previously planned, conditional on climate investment plans.
The proposal offers a more business-friendly and “savvy” approach, argued EU climate commissioner Wopke Hoekstra in a press conference.
But critics believe it could “weaken” the system and put EU climate targets at risk.
Alongside the proposal, the commission also announced a new target for electricity to make up 46% of energy consumption by 2040, doubling the current rate of 23%.
This could cut EU spending on imported fossil fuels by €260bn annually, according to the commission.
In this Q&A, Carbon Brief outlines the details of the new ETS proposal – which is subject to negotiation with member states – and explores what it could mean for climate action.
- What is the EU Emissions Trading System?
- What did companies and countries want from the ETS review?
- What is in the new proposal from the European Commission?
- What could the changes mean for greenhouse gas emissions?
- How was the proposal received?
- What is ‘ETS2’?
- What happens next?
What is the EU Emissions Trading System?
The EU ETS is a carbon market, which puts a price on the greenhouse gas emissions of companies in power generation, industry, aviation and other sectors.
It covers everything from electricity generation to steel production, as well as flights within the EU and a handful of other European countries.
Emissions in these sectors have halved since the ETS launched in 2005, according to the European Commission.
A European parliament briefing describes the system as a “cornerstone” of EU climate policy, covering around 40% of the bloc’s overall emissions.
It applies to emissions in all 27 EU countries alongside Iceland, Liechtenstein, Norway and electricity generation in Northern Ireland. (The UK established its own ETS after Brexit.)
The ETS operates as a “cap and trade” system, which puts a limit on the amount of carbon dioxide equivalent (CO2e) that can be emitted within the sectors it covers.
The “cap” on emissions gradually decreases each year until, eventually, they are expected to reach zero.
The currency of trade within the system is “allowances”. One allowance is equal to one tonne of CO2-equivalent emissions.
At present, around 57% of these allowances are bought by companies in auctions. The EU generated around €43bn in revenue from these auctions in 2025.
The remaining 43% of allowances are given to companies for free, to cover some or all of their emissions.
This is intended to prevent “carbon leakage” – the idea that companies operating in countries with strict climate policies will relocate to countries with looser rules.
The amount of free allowances varies by sector, depending on factors including the level of competition with overseas firms that do not face a carbon price.
What did companies and countries want from the ETS review?
Countries and companies have been divided on how they wanted the ETS to evolve.
Some pushed for more ambition to help meet European climate goals. Others called for it to be rolled back, amid rising costs for businesses.
In March, 10 countries including Italy, Hungary and Poland wrote a letter to the commission calling the ETS an “existential risk” for key industrial sectors, reported Euronews.
Italy had earlier even called for the system to be suspended outright.
France and other countries favoured introducing a slower descent towards bringing the emissions cap to zero by 2039.
Some steel and chemical companies also criticised the cost burden of the ETS.
Other organisations focused on calls for stability and predictability in the system.
In recent weeks, Spain, the Netherlands and five other countries called on the commission to “resist gutting” the ETS in its review, said E&E News. They said the ETS should be strengthened to “ensure long-term investment predictability and regulatory stability”.
Weakening the system could “undermine investment signals and leave Europe more exposed to fossil-fuel shocks”, said a March 2026 briefing from climate thinktank E3G.
Another E3G briefing said the “risk” is that politicians weaken the system as a short-term economic fix, “undermining one of the EU’s main tools for delivering on its industrial transformation ambitions”.
Dozens of investment organisations called on EU countries to facilitate a “robust and predictable” ETS. They said that “policy stability is the cheapest investment stimulus available to the EU”.
In its list of priorities for ETS reform, the NGO Carbon Market Watch said that “now is not the time to backslide” on its aims and terms.
What is in the new proposal from the European Commission?
The commission’s proposal outlines a number of changes to the ETS, to bring it in line with the EU’s climate goal to cut emissions to 90% below 1990 levels by 2040.
The review will “bring relief to industry”, the commission says, while also continuing the ETS’ “essential” role in climate action.
However, others are more sceptical about the impacts it could have on climate action.
Below, Carbon Brief details the main aspects of the proposal.
Free allowances extended
The European Commission proposes to extend free allowances beyond a previously agreed date.
Free allocations were due to reduce from this year and be fully removed by 2034.
However, the commission has proposed to extend this to 2038, on the condition that companies receiving free allowances set out how they will invest in decarbonising their EU operations.
It proposes that from 2031 onwards, 80% of free allowances in the system would be given to companies that have submitted plans for investment in EU decarbonisation.
The remaining 20% of free allowances would only be allocated to those that can prove they followed through with planned investments and achieved the emissions reductions they had previously outlined.
This move is a “step in the right direction”, says Dr Kirsten Scholl, the director for EU affairs at thinktank Epico, but it must not “impose excessive administrative burdens”.
The EU’s carbon border adjustment mechanism (CBAM) was designed to replace the existing system of free allowances in the ETS.
It is a tax applied to certain imported goods, based on the amount of CO2 emissions released during their production. It began to be phased in at the start of 2026.
As a result, free allocation is being gradually phased out from 2026-38.
However, the commission has proposed that 15% of free allocations due to be removed because of CBAM should be reintroduced from 2028, to “reduce the speed at which CBAM is phased-in and mitigate the remaining carbon leakage risk”.
The commission says that preventing carbon leakage “remains a crucial element” of the ETS.
Pushing back the phase-out of free allowances and the full implementation of CBAM “risks squandering the EU’s credibility with investors and trading partners alike”, says Francesco Lombardi Stocchetti, a policy advisor on sustainable economy at the Bellona Foundation, an environmental NGO.
“Europe cannot lead the clean industrial transition just by moving the goalposts,” he adds in a statement.
Slowing path to reach zero emissions by a decade
The commission has proposed to cut emissions in the ETS more slowly from 2031 onwards.
This could mean new allowances are able to enter the scheme into the 2040s, instead of ending in 2039 as previously planned.
But the planned changes are still “aligned” with the EU’s 2040 climate target and net-zero requirement by 2050, says the commission.
The overall ETS cap on emissions was reduced by 1.7% each year up to 2020 and then by 2.2% annually since 2021.
It is then agreed to drop by 4.3% over 2024-27 and 4.4% from 2028 onwards.
Maintaining similar rates after 2030 would not be “realistic”, says the commission’s proposal.
Instead, it suggests that the cap should fall by 3.7% per year over 2031-35 and by just 1.7% annually over 2036-40.
This will make the path to zero emissions within the ETS “more gradual and aligned with domestic climate ambition level”, claims the commission.
But WWF says that the proposal would allow an extra 2bn tonnes of CO2e to be emitted. (See: What could the changes mean for greenhouse gas emissions?)
Aviation
The commission has proposed plans to incorporate more airline emissions into the ETS.
The plan outlines that, from 2029, all flights departing from the European Economic Area (EU, Iceland, Liechtenstein and Norway) and landing in other countries within 5,000km of a point in central Europe should be added to the ETS.
This distance means that the changes would not apply to flights landing in China or the US. (Both the US and China have opposed the expansion of ETS coverage for flights.)
The commission also proposes including emissions from private jets and other “business flights” in the ETS.
It notes that aviation currently accounts for 14% of EU transport emissions. This is expected to skyrocket to around 90% by 2050, given it is more difficult to decarbonise than other modes of transport.
Some aviation emissions have been included in the ETS since 2012. This included emissions from air travel within the EEA and flights departing from Switzerland and the UK.
The airline industry did not respond favourably to reports of plans to expand beyond this scope.
On 8 June, the biggest airlines in Europe urged commission president Ursula von der Leyen not to extend the ETS to cover international flights, saying that it would raise ticket prices.
A study commissioned by Carbon Market Watch found that the ETS encompassing all flights departing from the EEA, not just those within it, would result in a “very small impact on ticket prices and passenger demand”.
Auction money
Under the proposed changes, EU countries would need to funnel half of the money they receive from ETS auctions towards decarbonising sectors covered by the system.
This would amount to more than €100bn in investment for decarbonisation before 2030, says the commission.
Around three-quarters of the money generated by the ETS has been allocated to EU countries since 2013, the proposal notes.
Since 2023, countries have been required to spend all of this money on climate and energy-related activities – at least on paper.
But the proposal says the “transparency and effectiveness” of this mechanism has been “insufficient”.
Currently, only around 5% of the ETS money “directly supports industrial decarbonisation in sectors such as steel, chemicals and fertilisers”, it adds.
Going forward, the proposal says that 50% should be put towards actions aiding clean-energy plans, industrial decarbonisation and improved waste management, as some examples.
A briefing by thinktank Institut Montaigne noted that the money generated within the system for EU countries to help finance the energy transition should be “at the heart” of ETS discussions, amid budget constraints in many EU countries at the moment.
CO2 removals
The commission has proposed integrating permanent carbon removals into the ETS to “give additional flexibility” for certain sectors that struggle to decarbonise. This action was previously agreed within the terms of the EU’s 2040 climate target.
“Permanent” removals refer to direct air capture with carbon storage and similar measures, rather than temporary removals such as planting trees.
The removals would be integrated into the system by increasing the allowance cap by an amount equivalent to the number of removals purchased.
This will set up “additional emission space” for hard-to-abate sectors and also support the “scale-up of the carbon removals industry”, outlines the proposal.
It also proposes that certain companies, such as shipping and aircraft operators, could compensate for their emissions with their own certified carbon removals.
These emissions would not be permitted to “go beyond zero”, adds the proposal.
Sven Harmeling, the head of climate at Climate Action Network (CAN) Europe, says that adding carbon removals “would weaken the ETS impact, undermine the carbon price and create new loopholes for polluters instead of accelerating the transition away from fossil fuels”.
The proposal “fails to ensure that only high-integrity removal technologies would be considered”, he adds in a statement.
However, the director of the Potsdam Institute for Climate Impact Research, Prof Ottmar Edenhofer, describes the move as “an important step”, saying:
“For the first time, it creates a credible and long-term investment framework for carbon-removal technologies in Europe.”
International credits
The commission proposes that firms covered by the ETS could make use of “high-integrity” credits bought on the global carbon market from 2036 onwards.
This relates to the EU’s 2040 climate target, in which up to 5% of the 90% reduction in GHGs can come from global carbon credits.
Amélie Laurent, a policy advisor in carbon accounting at the Bellona Foundation, says in a statement that these credits “should be in a strategic last resort reserve, not an excuse to avoid doing our homework”.
Aurora D’Aprile, the EU policy director at the International Emissions Trading Association, notes in a statement:
“For international credits, early preparation on governance and procurement and greater certainty around a pilot from 2031, will be essential to establish a credible demand signal.”
Other sectors extended
The commission has outlined plans to expand the inclusion of the maritime sector in the ETS.
Maritime accounts for around 4% of the EU’s total emissions. The new proposals for the sector include adding certain small ships of 400-5,000 tonnes to the system.
The proposal also outlines plans to incorporate more waste incineration into the ETS on a gradual basis from 2031.
Since 2024, some waste-burning companies have been required to monitor and report their emissions under the ETS. But they did not have to purchase credits.
Now, the commission proposes introducing the sector on a gradual basis.
Under the proposals, companies would require allowances for 25% of their emissions in 2031, 50% in 2032, 75% in 2033 and 100% from 2034 onwards.
Market stability reserve review
The market stability reserve was added to the ETS in 2019 to help stabilise the flow of allowances.
It acts like an overflow container holding extra allowances. If the number of allowances in the market falls below a certain threshold, more are brought out from the reserve to balance things out.
Equally, if the market is flooded with too many allowances, depressing prices, then some are removed and put into the reserve.
The commission has proposed a reform of the reserve, including changing the upper and lower limits for when allowances are released or removed.
It wants to reduce the rate at which allowances are withdrawn from auctions when they exceed a certain threshold from 24% to 12% from 2028.
This means that the permits would be able to stay in the market for longer.
As shown in the chart below, the price of carbon in the EU increased tenfold over 2017-2021, exceeding €80 (£68) per tonne of CO2.
Nevertheless, the commission proposal says the reserve was “effective in mitigating price shocks” on the ETS caused by the Covid-19 pandemic and the surge in energy prices after Russia invaded Ukraine in 2021.
UK-EU ties
The EU and UK have agreed in principle to link their carbon markets, but the commission’s proposal says negotiations are still “under progress”.
It adds that the commission “foresees” future financial contributions from the UK to the EU’s ETS, if a final agreement is reached.
Many companies have called for the systems to be linked. In June, dozens of carbon-capture organisations and industry groups signed a letter calling for greater certainty on EU-UK links to ensure cross-border carbon-capture and storage projects are covered, for example.
Switzerland’s ETS has been linked to the EU since 2020.
What could the changes mean for greenhouse gas emissions?
The European Commission says the ETS plays a “crucial role” in meeting its climate targets “cost-effectively”.
The system contributed to a 41% reduction in EU industrial emissions over 2021-23, a decrease of around 800m tonnes of CO2 per year, according to recent analysis from the London School of Economics.
As highlighted in the chart below, the EU’s overall GHG emissions have dropped by 40% since 1990.
Climate commissioner Hoekstra told a press briefing that the proposal is “fully aligned” with the EU’s target to cut GHGs to 90% below 1990 levels by 2040. He called the plan “completely climate-law proof”.
He also noted that no other EU policy has contributed to reducing emissions on the scale of the ETS, describing it as a “phenomenal asset”.
But campaigners and experts are concerned that the proposed changes could slow decarbonisation and put the EU’s climate goals at risk.
Carbon Market Watch says the plans would “severely weaken” the ETS and “risk undermining the achievement of the EU’s 2040 and 2050 climate targets”.
The proposals “would represent a major setback for EU climate ambition, weakening incentives to cut emissions, extending reliance on fossil fuels and putting the 2040 climate target at risk”, says a statement from WWF.
WWF estimates that 2bn extra tonnes of CO2 would be emitted if the proposals were approved in the EU.
Michael Bloss, a German member of the European parliament (MEP) for the European Greens, says the plans would release around 1.4bn tonnes of extra CO2. He describes the proposal as “climate vandalism”.
Chiara Martinelli, the director of CAN Europe, says:
“Every extra tonne of CO2 allowed under the ETS makes Europe’s climate challenge harder and more expensive. Weakening the ETS now is a gift to polluters that have prioritised shareholder payouts instead of investing in cleaner production.”
How was the proposal received?
The European Commission’s new ETS proposal has been met with a mixed response.
Scholl from Epico says the proposal has “important flexibilities that can help address competitiveness challenges and provide greater certainty for industrial investment”. But she adds in a statement:
“Concerns remain about whether the proposed changes preserve the long-term investment signal of the ETS and sufficiently recognise companies that have already committed to ambitious decarbonisation pathways.”
Edenhofer from the Potsdam Institute for Climate Impact Research adds that the proposals provide “clarity on the contribution that emissions trading is intended to make towards the 2040 climate target”.
Elisa Giannelli, a programme lead at E3G, says in a statement:
“Today’s proposal might please some, but it risks increasing both the long-term cost and the time needed to deliver the EU’s growth strategy.”
Pepe Escrig, a senior researcher, also at E3G, adds that the commission held onto some of the ETS’ “essential foundation”, but “yielded to political pressure to weaken it as a quick fix to broader challenges”.
This has left the plan “pull[ing] in two directions: strengthening support for industrial investment while weakening parts of the framework meant to drive it”, says Escrig.
Andrea Spignoli, the policy manager of sustainable markets at Bellona Europa, says the proposal risks “weakening green investments” and putting a larger decarbonisation burden onto other sectors that are not covered by the ETS.
Greg Van Elsen, a senior industrial policy coordinator at CAN Europe, says in a statement:
“Free pollution permits were never meant to become a permanent subsidy. Extending them until 2038 rewards delay instead of industrial decarbonisation.”
Lobby groups also had mixed reactions to different aspects of the proposal.
The International Air Transport Association says it is “deeply frustrated” with the proposal.
The organisation’s director general, Willie Walsh, claims the consequences will be “harmful”, “sowing acrimony over extraterritoriality, slowing global decarbonisation and sapping European competitiveness”.
WindEurope says the proposal risks “slowing decarbonisation and failing to channel billions in ETS revenues to industrial electrification”.
BusinessEurope’s director general, Markus J Beyrer, says some aspects “raise concerns”. For example, he says the “new conditionalities for free allocations risk increasing bureaucratic complexity and the uncertain role for international carbon credits”.
What is ‘ETS2’?
ETS2 is a separate emissions trading system to the main ETS. It is due to take effect in 2028 and is not affected by the current ETS review or resultant proposals.
It will operate under a similar system as the existing ETS, covering emissions from transport, buildings and smaller industries in other sectors.
One key difference, however, is that ETS2 will not provide any allowances for free. They will all be auctioned and bought by companies.
On 15 July, 10 countries, including Italy and Poland, had urged the commission to also reconsider the ETS2 during this review. They were unsuccessful.
Similar to the original ETS, the commission believes the carbon price under the new ETS2 system will “provide a market incentive for investments in building renovations and low-emissions mobility”.
However, in June, member-state governments and the European parliament agreed on a number of “safeguards” to support price stability.
For example, if allowance costs under the ETS2 exceed €45 per tonne of CO2, they agreed that 40m allowances will be put into the system from a reserve to normalise the supply – double the amount previously agreed.
A European Environment Agency briefing said the ETS2 will “affect fuel prices and mobility costs” and that money will be syphoned into a social climate fund to “support vulnerable households and investments”.
What happens next?
EU countries will now negotiate over the terms of the commission’s proposal before it goes to a vote in the European parliament.
Ireland, which recently took over the six-monthly rotating presidency of the Council of the EU, has stated that it wants the ETS proposals to be signed off by the end of this year.
A previous document from the council, which represents member-state governments, outlined a target to agree a deal by the first quarter of 2027.
Clean Energy Wire says that this would be an “unusually ambitious timetable for one of the bloc’s most technically complex pieces of climate legislation”.
Politico notes that “months of arguing” is likely to occur.
The post Q&A: What the EU’s carbon market review means for climate action appeared first on Carbon Brief.
Q&A: What the EU’s carbon market review means for climate action
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