The European and Cypriot economies are entering a trajectory of significant upheavals, following the publication of the new proposal for the revision of the Emissions Trading System (EU ETS) by the European Commission for the period after 2030. The proposal aims to align the EU with the 2040 climate target of a 90% reduction in pollutants compared to 1990, balancing climate ambition with the protection of industrial competitiveness.
The new framework brings with it critical provisions that directly affect Cyprus, with positive economic results of hundreds of millions of euros in key sectors, but also parallel challenges for aviation, domestic industry and waste management.
Following coordinated actions by the office of Commissioner Costas Kadis and the Permanent Representation of Cyprus, the extension until 2038 of the additional revenue share with a 3.5% allocation from the shipping ETS, an arrangement that concerns exclusively Cyprus, Greece and Malta due to the extremely high number of shipping companies they host, was secured. This arrangement brings a benefit of hundreds of millions of euros, which are committed to measures to decarbonize shipping, e.g. green fuels, electrification of ports, energy efficiency.
At the same time, the exemptions for maritime public utility connections and the connection of small islands are extended until 2035.
From 2031, the system is extended to smaller ships over 400 tons instead of the 5,000 tons currently in force.
Also, a support mechanism is created to cover the cost difference between conventional and clean marine fuels with up to €110 million available rights by 2040.
In addition, measures against the shifting of cargo to ports of neighbouring third countries are strengthened.
The EAC will continue to bear the cost of purchasing CO2 emission allowances for as long as it produces electricity from petroleum products, a cost that is passed on to consumers. However, the proposal introduces two positive parameters:
• A smoother rate of reduction in allowances to prevent a sharp spike in the price of carbon.
• Member States are required to allocate at least half of the revenues back to the energy sector (grids, renewables, storage, electrification), offering a permanent structural solution to Cyprus' high energy costs. In addition, Cyprus is maintained in the solidarity arrangement.
For Cypriot heavy industry, mainly cement and ceramic plants, the proposal extends the free allocation of allowances until 2037. However, a strict condition is set: 80% of the free allowances will be granted upon submission of a decarbonization investment plan.
The remaining 20% will be paid only when the implementation of the plan is proven. Industrial units that are unable to respond risk losing rights, facing increased production costs. At the same time, an Industrial Decarbonization Bank is established to finance green investments.
Today the ETS only covers flights within Europe. From 2029, the system is also extended to flights departing from the EU to third countries within a radius of up to 5,000 kilometres.
For Cyprus, this means that a large part of air connections with the Middle East and the Persian Gulf, areas vital for tourism and the island's connectivity, are directly affected. Although simplifications for small air carriers and a review are foreseen in 2032, the impact on ticket tariffs and tourist traffic requires an immediate assessment by the competent authorities.
From 2031, the incineration of municipal waste is gradually integrated into the ETS. A national exemption is possible until 2035, provided that the Member State meets specific progress criteria in the European recycling and landfill targets.
In addition, landfills will be subject to emission monitoring and reporting obligations, with the prospect of future charging. Due to Cyprus' high dependence on landfill, a rapid adaptation of the design of energy recovery plants is needed so as not to overburden local authorities and citizens.
Climate, energy costs and the survival of European industry
The upcoming revision of the EU Emissions Trading System (EU ETS) in 2026 is a crucial point in adapting the framework to the specificities of maritime transport, ensuring aviation connectivity, power plants, heavy industry and waste.
Through the ETS mechanism, the EU charges CO2 pollutants to operators who emit carbon dioxide. These operators are required to purchase allowances for each tonne they emit. In fact, the amount of allowances available each year is gradually decreasing, so that pollutants become more and more expensive and businesses move on to investments in clean technologies. Indicatively, it is mentioned that this is also the reason why the EAC, producing electricity mainly from fuel oil, is burdened with significant costs for the purchase of rights, which at the end of the day are passed on to electricity bills. Money that is not lost, but returns as revenue to the state coffers and through them actions for the green transition are financed.
On 17 July 2026, the Commission presented the new legislative revision package for the post-2030 period. Now, the Irish presidency aims for a political agreement of the member states in the Environment Council on 11 December 2026, with a view to the final conclusion of negotiations with the European Parliament by the end of March 2027. Cyprus is expected to continue negotiations in close coordination with Greece and Malta, with the aim of safeguarding maritime acquis and carefully managing aviation and waste challenges.
Cyprus is officially included in the 12 lower-income member states that fall under the redistribution of 10% of ETS auction rights, with the aim of fairer burden sharing and strengthening national revenues for the green transition.
The Investment Booster Mechanism is established, which commits part of the 400 million emission allowances for investments, ensuring the 12 lowest income member states, including Cyprus, a guaranteed share of 25% proportional to their industrial emissions, as well as access to the remaining available stock.
For Cyprus, as a leading shipping centre and island state, the revision places particular emphasis on preventing the diversion of cargoes to neighbouring non-EU ports (e.g. the Eastern Mediterranean), while returning significant funds to shipping for clean fuels and port infrastructure.
A significant part of the revenues generated by the maritime sector should be returned to the sector itself through the financing of green investments, the development of port infrastructure, the production and distribution of clean marine fuels, shore-side electrification projects for ships, the strengthening of innovation and research.
