EU Proposes ETS Alignment Path to 2040 Targets as Asia Links Policy to Carbon Credits — July 2026
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July brought a dense stretch of regulatory movement across carbon, renewable energy, and clean fuels markets, with Europe producing the largest package of the month. The European Commission's July 17 proposal to extend the EU Emissions Trading System through 2040 is the headline. It softens the post 2030 cap and allocation trajectory, broadens sector coverage, and sets out a phased timeline for CORSIA integration, international carbon credits, and EU-centralized carbon removal procurement, alongside new funding support for sustainable aviation and maritime fuels. Spain confirmed its transposition of RED III, and the European Parliament pushed back on a Commission proposal that would have restricted soybean-based biofuels. In Asia-Pacific, China and Singapore both moved to link compliance and licensing policy to market instruments. China's new Zero-Carbon Factory program links manufacturing and data center certification to renewable energy consumption and carbon credit use, while Singapore's draft Digital Infrastructure Bill would allow carbon-credit surrender to be considered in data center licensing. In the Americas, Mexico opened a new registration pathway for CELs, and globally, the GHG Protocol published new land-sector accounting guidance likely to tilt corporate demand toward waste-based biofuel feedstocks.
Valid as of: 24 July 2026.
Global
GHG Protocol Land Sector and Removals Guidance: new standard signals shift toward waste-based feedstocks
What happened
The GHG Protocol published carbon accounting guidance for its Land Sector and Removals Standard (LSRS), detailing requirements for companies to report emissions arising from land-sector activities, including crop-based biofuel production. The standard is voluntary today but is expected to eventually be incorporated into corporate disclosure regulations in jurisdictions including California and the EU that require covered companies to conform to the GHG Protocol.
What it means for your business
LSRS is expected to increase emissions disclosure burdens for crop-based biofuels, which may impact voluntary corporate demand for waste-based feedstocks, affecting biomethane, sustainable aviation fuel, and TERCs. Waste oils, including used cooking oil and tallow, carry no land-use-change risk.
Entry into force
Voluntary today; expected incorporation into corporate disclosure regulation in jurisdictions including California and the EU from 2027.
Further reading
Asia-Pacific
China's National Zero-Carbon Factory Development Plan: MIIT program signals rising demand for GECs, biomethane, and carbon credits
What happened
On July 22, China's Ministry of Industry and Information Technology (MIIT) launched a national program to develop Zero-Carbon factories and data center facilities. Eligible applicants must meet baseline requirements, including a renewable energy consumption ratio and an emission intensity threshold, and demonstrate a credible pathway to near-zero operational CO₂ emissions through technology upgrades, energy restructuring, and market instruments, with targets due no later than 2030. MIIT will confirm the final list of qualifying factories and facilities, with progress assessed annually.
What it means for your business
The program signals rising domestic support for GECs, biomethane, carbon credits, and carbon management services as 2030 approaches. Verified Zero-Carbon factories must meet renewable power consumption of at least 95%, covering electricity, heat and cooling, and primary energy such as gas and fuel. This strict threshold may impact demand for GECs, biomethane certificates, and green fuels. Carbon offsets are recognized against emission compensation, including ITMOs and China's national voluntary credits (CCERs), creating a possible carbon credit opportunity. Affected sectors include data centers and manufacturing, including automotive, battery, solar PV, electronics, and mechanical industries.
Entry into force
Targets due no later than 2030; MIIT to confirm qualifying facilities, with annual progress assessment.
Further reading
Singapore Digital Infrastructure Bill: draft legislation could link data center licensing to carbon credit surrender
What happened
On July 1, Singapore's Ministry of Digital Development and Information (MDDI) released the draft Digital Infrastructure Bill, which covers environmental sustainability requirements for data centers and seeks to impose and raise baseline environmental sustainability standards across the sector.
What it means for your business
The draft bill would allow the licensing authority to consider whether emissions associated with a data center's non-low-carbon electricity use will be mitigated through eligible international carbon credits. It would also allow license conditions to require the acquisition and surrender of those credits. If enacted, this could create a new, licensing-linked source of carbon-credit demand among Singapore-based data center operators.
Entry into force
Draft bill under public consultation; entry into force pending finalization.
Further reading
Europe
European Sustainability Reporting Standards: Commission adopts revised, lower-burden framework
What happened
The European Commission adopted revised European Sustainability Reporting Standards (ESRS), including a new voluntary reporting standard for smaller companies. The revision is designed to reduce administrative burden for EU businesses while maintaining high-quality disclosures. Both delegated acts, the ESRS revision and the voluntary reporting standard, will be transmitted to the European Parliament and the Council of the EU.
What it means for your business
This confirms the direction already signaled by the Omnibus bill: reporting burdens and thresholds are being reduced for EU businesses. Existing voluntary CSR frameworks, now more closely aligned with ESRS, will likely remain dominant.
Entry into force
Subject to a two-month scrutiny period, extendable by a further two months; expected to pass and apply from 2027.
Further reading
European Commission: Corporate Sustainability Reporting Directive
Spain transposes RED III: new Royal Decree establishes biomethane incentives
What happened
On July 21, Spain's Ministry for the Ecological Transition and the Demographic Challenge (MITECO) approved a Royal Decree transposing the EU's Renewable Energy Directive III. The regulation establishes, for the first time, a comprehensive and stable framework for renewable transport fuels through 2040, including incentives for biomethane.
What it means for your business
The Royal Decree gives biomethane producers in Spain a stable, bankable revenue mechanism through 2040, replacing the previous ad hoc support landscape. Biotickets tied to Spanish biomethane can be sourced to help meet Spanish and broader EU renewable transport obligations.
Entry into force
Spain. Royal Decree approved July 21, 2026; framework runs through 2040.
Further reading
EU ETS Review: European Commission proposes extended cap and broader instrument recognition through 2040
What happened
On July 17, the European Commission proposed a package of changes to the EU Emissions Trading System from 2030 through 2040. The proposal softens the cap, linear reduction factor, and free allocation reduction pathway, and adjusts Market Stability Reserve parameters, while making free allocation conditional on company investment in decarbonization. Coverage broadens to include new outbound flights from EEA airlines, small marine vessels, and waste incinerators. The same proposal would make CORSIA mandatory for aviation from 2027 through 2035, with transition rules to avoid double obligations between the EU ETS and CORSIA; introduce international carbon credits into the EU ETS from 2036 via EU-centralized procurement; add funding support for sustainable aviation fuel and sustainable maritime fuel, including e-fuels and EU-produced fuels, and permit the use of carbon removals, including BECCS and DACCS certified under the Carbon Removal and Carbon Farming Regulation and located in Europe, from 2031, also via EU-centralized procurement. A final agreement is expected in Q1 2027.
What it means for your business
The proposed EU ETS revision would broaden regulatory coverage across aviation, maritime, waste and industry, while increasing support for sustainable fuels and industrial decarbonization. For companies in affected sectors, the main implications are likely to include more complex compliance requirements, closer links between investment and carbon costs, and new considerations around fuel eligibility, traceability and interaction with international schemes. As the proposal remains subject to negotiation, businesses should assess potential operational and financial impacts while monitoring the final rules.
Entry into force
Proposed changes apply from 2030 for the cap and allocation pathway, 2027 for the CORSIA mandate, 2031 for carbon removals, and 2036 for international credits. Final agreement expected Q1 2027.
Further reading
Disclaimer
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