Summer Playlist 2026 Episode 4 | Mark Lewis, Partner and Managing Director, Climate Finance Partners LLC

On July 17, 2026, the European Commission released its long-awaited review of the EU Emissions Trading System (EU ETS), a once-every-five-years policy announcement that sets the carbon market’s trajectory from 2031 to 2040. The initial market reaction was bearish—prices dipped on leaks about a slower cap reduction—but within days, analysts and traders digested the fine print and reversed course. As Mark Lewis, Partner and Managing Director at Climate Finance Partners, explains, the headline numbers told only part of the story. The real signal was in the conditionality attached to new supply: industry would have to earn its allowances by actually decarbonizing. Lewis calls it “a very clever and very meaningful intelligent piece of policy making” that balances industrial competitiveness with climate ambition.

The cap: slower decline, but with a catch

The most visible change in the proposal is the trajectory of the cap—the total volume of allowances that declines each year. Currently, the cap is falling by 4.3% annually until 2028, then 4.4% until 2030. The Commission proposed a 3.7% annual reduction from 2031 to 2035, which was broadly expected. But from 2036 to 2040, the rate drops sharply to just 1.7%—far lower than anyone anticipated. That looked bearish: a slower cap decline means more allowances in the market, weaker scarcity, and lower prices.