The European Union is preparing to make large changes to its carbon pricing system. EU Commission President Ursula von der Leyen announced that the bloc will revise its Emissions Trading System (ETS) and launch a new €30 billion cleantech investment fund. These moves aim to support the bloc’s climate goals and help industry cope with shifting energy markets.
The announcements came after a summit of EU leaders focused on energy prices and economic challenges. Rising global energy prices and geopolitical pressures are affecting Europe’s economy and industry.
The new proposals aim to improve the EU’s carbon pricing system. They will also encourage investment in clean technology throughout the bloc.
Von der Leyen said:
“The Emissions Trading System is working. It has massively reduced gas consumption. Because of that, it has reduced our dependency on imports of fossil fuels, and it has reduced our vulnerability. And it has driven major investments in the energy transition in the low-carbon energy sources like renewables and nuclear that are homegrown and give us independence. But we need to modernise it and make it more flexible.”
What Is the EU Emissions Trading System and Why Change It?
The EU’s Emissions Trading System is the bloc’s main carbon pricing tool. It was set up in 2005 to reduce greenhouse gas emissions from major industrial sectors. These include electricity and heat generation, steel, cement, chemicals, and commercial aviation.
Under the ETS, companies must buy permits for each ton of carbon dioxide they emit. The total number of permits is capped to reduce emissions over time.
Over nearly two decades, the ETS has helped reduce Europe’s dependence on fossil fuels and encouraged investment in cleaner energy. It is often viewed as a cornerstone of the EU’s climate policy.
The EU ETS continues to generate large revenues that fund climate action across Europe. In 2025, total ETS auction revenues exceeded €43 billion, with about €24 billion going directly to EU member states.
The remaining funds were allocated to EU-level programs such as the Innovation Fund, Modernisation Fund, and the Social Climate Fund. Overall, ETS revenues since 2013 have surpassed €258 billion, making it one of the world’s largest carbon market funding sources.
However, rising energy costs are pressuring European industries. They started with the war in Ukraine and are now impacted by conflicts in the Middle East. Some member states have asked for a review of the ETS to ease short‑term burdens.
Planned changes “in the next days” may include:
- Updating benchmarks for free allowances given to the industry.
- Strengthening the Market Stability Reserve, which manages the supply of carbon allowances to stabilize prices.
Future changes will seek a “more realistic trajectory.” They may also extend free allocation for some industries past 2034.
Carbon Pricing in Europe: The Stakes and the Context
Carbon pricing has been a key driver of investment in clean energy. ETS prices influence how companies weigh fossil fuels versus low‑carbon options. In recent weeks, ETS prices have fluctuated, partly in response to talks about reform and broader energy market volatility.
Recent reports noted that benchmark EU carbon prices jumped almost 10% after policy statements from EU leadership.
Market stability is a core concern. The ETS’s design includes mechanisms to support consistent carbon prices, especially during times of economic stress. A strong and predictable carbon price can help investors commit to long‑term clean energy projects. Conversely, sudden changes can raise costs for industrial players and weaken investment incentives.
At the same time, formal industry and civil society groups have called for regulatory certainty. They say stable carbon pricing is key for planning big clean energy projects. It also helps the EU keep its role as a leader in global climate efforts. These groups emphasize that unpredictable policy shifts could slow clean industrial growth and raise risk for new projects.
A New €30 Billion Cleantech Fund to Boost Decarbonization
Alongside ETS reform, von der Leyen announced plans for a €30 billion ETS Investment Booster. This new fund will support decarbonization and clean technology projects across Europe. It will be financed by revenues from the ETS, meaning carbon pricing will help fund climate action directly.
The booster fund will operate on a “first-come, first-served” basis to support ready‑to‑deploy projects. Von der Leyen said that the fund will ensure access for lower‑income member states. This is intended to promote fairness across the EU and help balance regional disparities in clean technology investment.
The new fund complements existing EU climate finance mechanisms. The Innovation Fund has backed many projects. These include renewable energy, energy storage, and industrial decarbonization.
In 2024, the Innovation Fund provided €4.8 billion in grants. This supported 85 innovative net-zero projects. These efforts helped reduce nearly 476 million tonnes of CO₂ in the first decade.
Expanding funding sources for clean industrial investments reflects a broader EU trend. The Clean Industrial Deal, launched in 2025, plans to raise over €100 billion. This funding will support clean technology manufacturing, create jobs, boost energy efficiency, and promote circular economy solutions.
Renewables, Baseload, and Energy Market Trends in Europe
The EU’s net‑zero journey sits against a backdrop of changing energy markets. Renewable energy deployment in Europe continues to grow rapidly.
Wind and solar now make up an increasing share of electricity generation in many member states. These technologies are expected to gain further market share as costs fall and grid integration improves.
However, the need for stable and resilient power systems has grown. Renewable sources like wind and solar are variable by nature. This increases interest in baseload options like geothermal, hydropower, nuclear, and storage paired with renewables.
Meanwhile, global energy prices have remained volatile. Brent crude prices rose above $110 per barrel due to geopolitical tensions. This increase is driving up electricity and heating costs in Europe. These price swings can influence industrial competitiveness and household energy bills.
EU leaders view carbon pricing and investment in decarbonization as key to reducing long-term risks from unstable fossil fuel markets. Policymakers want to use ETS revenues for clean technologies. This will help reduce the need for imported fuels and boost energy independence.
Industry Reaction: Balancing Flexibility and Climate Signals
The proposed changes have drawn mixed reactions. Some industry groups welcomed the updates to the ETS. They said the funding support could help reduce short-term cost pressures. Others warn that too much flexibility could weaken long‑term climate signals and reduce investment certainty.
Civil society organizations have stressed the importance of maintaining carbon pricing integrity. They believe a strong, predictable ETS is key. It will boost investment in electrification, renewables, energy efficiency, and circular economy solutions. Maintaining the market’s rules‑based design, supporters say, will help the EU stay on track with its 2030 and 2040 climate targets.
The European Council has invited the Commission to present a formal ETS review by July 2026 at the latest. This timeline reflects the urgency of balancing climate goals with current economic pressures.
Looking Ahead: Combining Policy and Investment for Climate Goals
The EU’s planned changes mark an important step for climate policy. Reforming carbon pricing and launching a €30 billion cleantech fund will help drive decarbonization.
The ETS has already helped cut emissions by putting a cost on pollution and supporting cleaner energy. Using ETS revenues for clean technology will expand this impact. It will speed up renewable energy and support low-carbon industries.
These actions support the EU’s targets to reach climate neutrality by 2050 and cut emissions by at least 55% by 2030. The next phase of policy decisions will shape carbon markets, energy prices, and Europe’s clean energy transition.
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More and more small and medium-sized businesses are hearing the same question from their larger customers: What is your carbon footprint? That question now travels down entire supply chains, and it arrives next to tender requirements, certification criteria, and rising customer expectations.
The accounting differences that decide whether your nature investment shows up in inventory, in BVCM, or nowhere at all.
The question reaches a procurement team about three weeks before the next sustainability committee meeting. Someone has read about insetting. Someone else has just signed off on an offset purchase. The CSO wants to know if the two are interchangeable. The answer is no, and the GHG Protocol Land Sector and Removals Standard is the reason why.
This article walks through what each term means at audit-grade specificity, what the standards actually say about how each gets counted, and how to decide which tool fits which target. The insetting vs offsetting question is one of the most-searched in corporate climate strategy, and one of the most poorly answered. By the end of this piece, you should be able to brief a committee on the difference without notes.
The two definitions, in plain English
Offsetting means buying carbon credits generated outside your value chain and retiring them against your residual emissions. The reduction happens somewhere else, financed by you, and the credit is the receipt.
Insetting means investing in emission reductions or removals inside your own value chain, typically with suppliers, where the reduction is directly linked to the products and services you buy. The reduction happens inside the boundary of your Scope 3 inventory, and the accounting treatment is fundamentally different.
The shorthand from the University of Oxford’s Nature-based Insetting Initiative is useful: insetting is what you do with the supply chain you have; offsetting is what you do with the supply chain you do not have.
What the GHG Protocol Land Sector Standard actually says
The GHG Protocol Land Sector and Removals Standard, finalised in 2024 after a multi-year pilot, sets the rules for how land-based emission reductions and removals enter corporate inventories. The Standard distinguishes between inventory accounting (Scope 1, 2, and 3) and project or intervention accounting (a separate methodology for crediting).
For insetting, the practical implication is that supplier-level interventions, when properly measured and attributed, can reduce your Scope 3 category 1 (purchased goods and services) emissions in your inventory. The reduction is not a credit retired against the inventory; it is a lower inventory number, period.
For offsetting, the credit is retired separately. It can be reported as a contribution toward a net-zero claim under the SBTi Beyond Value Chain Mitigation framework or as part of a VCMI Carbon Integrity claim, but it does not lower the inventory number.
A practical consequence: if your Science Based Target requires a 50% absolute reduction in Scope 3 emissions by 2030, insetting moves you toward the target. Offsetting does not. This single point of difference reshapes the procurement decision.
When insetting counts toward Scope 3 (and when it does not)
Insetting counts toward Scope 3 only when several conditions are met:
- The intervention must occur with an entity in your value chain.
- The emissions reduction or removal must be measured against a defensible baseline.
- The reduction must be attributed to your share of that supplier’s output, not double-counted with other buyers.
- It must follow the inventory accounting rules in the GHG Protocol Land Sector Standard, not the project accounting rules used to generate credits.
The most common failure mode is double counting. If your supplier sells the same reduction as a credit on the voluntary market and also reports it to you as a Scope 3 reduction, the math breaks. The Standard requires you to address this risk, typically by purchasing and retiring the supplier-issued credit as part of your inventory or by contractual provisions that prevent the supplier from selling the reduction twice.
When insetting does not count toward Scope 3: when the intervention sits with a supplier you do not buy from, when the baseline is not defensible, when the attribution is unclear, or when the documentation does not survive audit. Those cases default to Beyond Value Chain Mitigation, which is still useful but operates on a different ledger.
The procurement and supplier engagement question
Insetting is harder than offsetting. That is the unfashionable truth most buyers eventually confront. Offsetting is a transaction; insetting is a relationship.
To run an insetting program, you need supplier mapping precise enough to know which farms or facilities sit at which Scope 3 boundary. You need an engagement model that gets suppliers to participate, which usually requires multi-year commitments and shared economics. You need an MRV architecture that measures the right things and produces audit-ready documentation. And you need a contractual structure that prevents double counting and protects both sides.
The trade-off you receive in return is significant. Reductions count against your inventory rather than your residual. Supplier relationships deepen, which protects sourcing continuity. Yield and quality improvements often follow regenerative interventions, which reduces your input cost over time. And the regulatory file, under CSRD, CSDDD, EUDR, and the SBTi FLAG Guidance, is materially stronger.
Choosing the right tool for the right target
A practical decision rule. If your target is a science-based Scope 3 reduction and you operate in a FLAG sector or source FLAG commodities, insetting is the structurally correct tool. If your target is a net-zero claim that includes neutralising hard-to-abate residual emissions outside your value chain, BVCM via high-integrity offsets is the structurally correct tool. Most companies with material Scope 3 exposure need both, in different proportions, sequenced over time.
The sequencing matters. Insetting takes longer to stand up but produces a permanent reduction in the inventory. Offsetting can be transacted faster but does not change the inventory and now sits under tighter claim restrictions. Treat them as complementary tools with different jobs, not as substitutes. The Accountability Framework Initiative and the IUCN Global Standard for Nature-based Solutions both provide useful guardrails for the insetting side, with biodiversity, human rights, and benefit-sharing requirements that go beyond carbon math.
If you are mapping a Scope 3 reduction roadmap and need to scope which interventions count toward your inventory versus which sit in Beyond Value Chain Mitigation, the carbon and sustainability experts at Carbon Credit Capital can help you structure a nature-based supply chain investment program that fits your FLAG exposure, your target architecture, and your audit horizon. Schedule a consultation.
Net zero is often described as a balancing act: cut what you can, account for the rest, and reach zero on the ledger. That framing is useful, but it leaves something out. It treats every tonne of carbon as interchangeable and every route to zero as equally sound, while the science tells a more specific story.
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