Bringing ETS Sectors to Net Zero: Key considerations for the evolution of ETS design and of complementary policies

Emissions trading systems (ETSs) have proven their worth as cost-effective tools for cutting emissions, but getting covered sectors all the way to net zero will require more than a carbon price. This thematic brief asks what it will take for ETSs, and the sectors they cover, to complete the journey.

The brief examines how ETS design will need to evolve as decarbonization deepens: the role of the ETS in the broader policy mix; managing competitiveness risks and the future of free allocation; the strategic use of revenues; market design and liquidity in a shrinking market; the role of carbon capture and storage and of carbon dioxide removal; international linking and cooperation; and maintaining public acceptance as carbon prices rise.

Beyond the ETS, the brief confronts the limits of carbon pricing in driving deep decarbonization and maps the complementary policies jurisdictions are deploying - across energy, industry, transport, buildings, and agriculture - to address those limits. Key takeaways draw on insights from an ICAP members' discussion held under Chatham House rules in September 2025.