EU Climate & Energy Policy Fit for the 2030s - ETS Reform, 2040 Targets & Geopolitical Risk

E3G's April 2026 orientation briefing, authored by Pepe Escrig, Leah Nyamey, and Manon Dufour, sets out the political and policy landscape for the EU's post-2030 climate and energy framework review. It argues that European governments must resist deregulatory pressure, maintain regulatory stability, and use the review to embed decarbonisation within energy security and industrial competitiveness agendas.

Context:

Europe is entering the final years of its 2030 climate framework with the 2040 target of a 90% emissions reduction formally adopted, but with deep divisions among Member States about how to achieve it. The Commission's legislative review is planned in phases: ETS reform proposals in July 2026, followed by proposals on the Governance Regulation, national targets, energy directives, and international credits in December 2026. The remainder of the legislative files will be negotiated through 2027, a year marked by national elections in major Member States including Germany and France.

E3G's briefing warns that the window for preserving the integrity of the existing 2030 framework is closing. As legislation is reopened for review, deregulatory pressures are intensifying, driven by the Middle East energy crisis of early 2026, geopolitical volatility, and growing political pressure on the EU Emissions Trading System. E3G argues that resisting these pressures is essential to provide certainty to ongoing investments and establish a credible baseline for the next decade.

For financial institutions, the briefing is significant because regulatory stability is a prerequisite for bankable investment in the energy transition. Uncertainty about the post-2030 framework and specifically about the trajectory of carbon prices in the ETS creates material investment risk for clean energy projects, industrial decarbonisation, and green bond issuance tied to transition milestones. E3G calls for broad political ownership of the review and regulatory predictability to ensure that public authorities, companies, investors, and households can plan with confidence.

Rules and Guidelines:

• No binding rules are introduced, this is a pre-legislative orientation briefing aimed at shaping the EU's post-2030 framework review

• Key legislative files under review include: EU ETS revision (Commission proposal July 2026), Governance Regulation and national targets (December 2026), energy directives including the Renewable Energy Directive and Energy Efficiency Directive, and international credits

• E3G recommends three principles: (1) resistance to deregulatory rollback of existing 2030 framework provisions; (2) coherence across interconnected legislative files, including the MFF, Industrial Accelerator Act, and EU Grids Package; and (3) broad political ownership and regulatory stability for the 2040 framework

• The briefing calls for close alignment between the post-2030 framework and parallel negotiations, specifically the Multiannual Financial Framework and the Industrial Accelerator Act to ensure decarbonisation investments receive consistent support

Businesses Affected:

• UK and EU financial institutions with clean energy project finance portfolios, ETS price trajectory and national target clarity are fundamental inputs to project bankability and long-term valuation

• Green bond and sustainable finance teams, the regulatory trajectory of the EU 2030/2040 framework directly affects the credibility and alignment of EU Taxonomy-linked instruments

• Banks with industrial lending exposure: The Industrial Accelerator Act and energy efficiency directive revisions will affect credit risk in energy-intensive industries

• Asset managers with EU equity portfolios in utilities, energy, and industrials, the ETS revision and 2040 target trajectory will reshape carbon pricing risk across these sectors

• Climate risk and scenario teams at financial institutions, regulatory certainty (or lack of it) in the EU framework, are a key input to transition risk scenario analysis under ISSB S2, the ECB's climate stress tests, and internal TCFD reporting

Next Steps:

• Capital markets and project finance teams should incorporate the EU post-2030 framework review timeline into deal structuring and due diligence processes for EU clean energy projects spanning the 2030–2040 period

• Green finance and taxonomy teams should monitor the ETS revision proposals (July 2026) closely; any changes to carbon pricing trajectories or sector coverage will affect the EU Taxonomy's credibility and linked financial instruments

• Climate scenario teams should build the regulatory uncertainty E3G identifies into their transition risk scenario models, reflecting the range of possible policy outcomes from the 2026–2027 legislative review

• ESG engagement and stewardship teams should engage with EU institutional stakeholders on maintaining regulatory stability, which aligns with fiduciary obligations to protect long-term investment value

• Track the Commission's December 2026 proposals on the Governance Regulation and national targets; these will determine how individual Member States' decarbonisation trajectories are enforced and monitored

E3G Think Tank | Source: EU’s Climate and Energy Policy Fit