Malta has secured a number of concessions in the European Commission's long-awaited proposal to revise the EU Emissions Trading System (ETS), with the government describing the changes as a significant victory for the country's maritime and aviation sectors.
However, while welcoming several of the amendments it had advocated, the Malta Business Bureau cautioned that the reform still falls short of adequately protecting island member states from the disproportionate costs of decarbonisation.
This introduction captures the contrast between the two statements from the outset: the government's emphasis on success and the MBB's more measured assessment, setting up the story to present both perspectives.
The government said it is satisfied that the European Commission's revised Emissions Trading System (ETS) proposal incorporates a number of key Maltese priorities, including stronger protection for Malta Freeport, continued safeguards for the country's air connectivity and the retention of dedicated support for island Member States.
The proposal for the revision reflects several recommendations consistently advanced by the Government throughout the past years following the entry into force of the current system, which recognise the unique realities faced by island states whose economies depend heavily on maritime and air transport.
The ETS is the European Union's carbon pricing mechanism, which places a cost on emissions from shipping, aviation and other sectors. While the system is designed to drive down carbon emissions across Europe, its implementation must also ensure that island Member States are not placed at a structural disadvantage simply because of their geography.
These results are the outcome of sustained engagement by the government at European level, backed by continuous consultation with Malta's private sector, the government statement said. "Government worked closely with businesses, industry representatives and operators to understand the practical realities they face and ensure Malta's position was firmly grounded in evidence, practical experience and economic realities."
As a result of these efforts, Malta positively notes that a number of important improvements to the current system are being put forward by the Commission.
Under the proposed revision, transhipment operations involving cargo arriving from non-EU ports and not destined for the European Union will no longer be subject to ETS charges. This is a significant achievement for Malta Freeport, safeguarding its competitiveness against rival transhipment hubs outside the European Union.
The Neighbouring Port clause has also been extended to cover all competing North African ports. This closes a loophole that previously incentivised shipping operators to make an intermediate stop outside the European Union purely to reduce their ETS costs before entering EU ports.
The government said it also welcomes the proposed retention of a dedicated allocation of ETS revenues for Malta, Cyprus and Greece until 2038.
In aviation, the temporary suspension of full ETS charges on departing flights has been maintained until 2032, helping safeguard Malta's connectivity while limiting additional costs for airlines, businesses and passengers.
Minister for Energy, the Environment and the Regeneration of the Grand Harbour Miriam Dalli welcomed the revised proposal, describing it as proof that Malta can achieve meaningful results when it combines ambitious climate objectives with a strong defence of the national interest. "Climate action must be fair. Island states cannot be expected to carry disproportionate costs simply because of their geography. Throughout its active engagement with the European Commission ahead of this proposal, Malta consistently made the case that Europe's climate ambitions must go hand in hand with competitiveness, connectivity and fairness. I am pleased that Malta's realities are reflected in this revision, delivering tangible improvements that safeguard the competitiveness of our strategic maritime and aviation sectors."
"We look forward to the negotiations in the Council where Government will continue working constructively to deliver further targeted support to our businesses and citizens. Our commitment to climate action is unwavering, but the transition must also be practical, equitable and leave no island state behind," Minister Dalli stated.
For its part, the Malta Business Bureau (MBB) called for the re-design of EU ETS to deliver for all Member States, especially those in the periphery.
MBB said it has proposed concrete amendments to prevent disproportionate harm to Malta and other island Member States. In line with MBB amendments, the Commission has proposed a reduction in the transhipment activity threshold from 65% to 50% providing relief for Maltese transhipment against North African ports. The review was tasked by European Council conclusions of 19 March 2026, with reducing the volatility of the carbon price and mitigating its impact on supply chain costs, while preserving the ETS's role in the climate transition.
It nonetheless falls short of proposing tangible measures which will reduce costs for maritime and aviation operators. MBB's CEO Mario Xuereb said: ". MBB supports ambitious decarbonisation, but the structural realities of island states, higher transport and energy costs, limited economies of scale, and import dependence, must be reflected in the design of the EU ETS. Without targeted safeguards, the reform risks overburdening Malta with the costs of decarbonisation, without reaping any of the benefits."
Malta, as an island Member State with no land connection to the rest of the Single Market, depends entirely on maritime and air links for the movement of goods and people. The MBB has repeatedly flagged that vessels carrying the majority of goods consumed in Malta return to the mainland more than half empty, meaning the full ETS cost is absorbed disproportionately across the round trip.
Decarbonisation measures in both sectors are far from being feasible to be implemented, and until then, Malta will be left to foot the bill. MBB has submitted concrete textual amendments to the Commission, including partial derogation from the maritime ETS surrender obligation for routes serving small islands with no fixed link to the mainland, and an equivalent free allocation for aviation to and from island airports of less than 10,000 km².
MBB said it had also proposed extending the definition of a "neighbouring container transhipment port" from 300 to 1,000 nautical miles, alongside lowering the threshold from 65% to 50%, which was accepted. While the Commission did not extend the radius itself, it introduced a further anti-evasion safeguard: any port within 150 nautical miles of an EU port with adequate transhipment infrastructure, will now qualify as a "neighbouring transhipment port" regardless of its transhipment share.
MBB welcomed this additional layer of protection against the relocation of transhipment activity to nearby non-EU ports. MBB's Brussels-based Nigel Caruana said: "This ETS review is the first real test of the Commission's commitment to tailor policies to island realities. The measures MBB has proposed would mitigate the impact on essential connectivity while preserving the environmental integrity of the system." The European Commission published its EU ETS reform proposal on 17 July 2026.
The reform, the first legislative proposal shaping the post-2030 climate architecture, adjusts the Linear Reduction Factor, phases out free allowances, strengthens the Market Stability Reserve, and considers extending the system to waste and extra-EU/EEA flights. It also addresses revenue use and the potential inclusion of carbon removals and international credits. The EU ETS was extended to maritime transport from 2024 and reached full compliance from January 2026, with shipping companies now required to surrender allowances for 100% of verified emissions on qualifying voyages. Aviation allowances moved to full auctioning from 2026, following the phase-out of free allocation.
Malta, as one of three island Member States alongside Ireland and Cyprus, faces structural economic constraints recognised explicitly in Article 174 of the Treaty on the Functioning of the European Union (TFEU), which identifies islands among regions "suffering from severe and permanent natural or demographic handicaps."
The Commission's ETS 2021 Impact Assessment (SWD(2021) 601 final) recognised that extra-EU imports and exports transported by sea account for over 50% of the total value of traded goods for island countries such as Malta, Cyprus and Greece, and that these countries and regions are among those most exposed to changes in shipping activity resulting from the ETS. Transport costs can exceed mainland benchmarks by up to 300%, and geographic isolation imposes GDP per capita costs estimated between 7% and 36%.
BusinessEurope and several Member States have highlighted competitiveness concerns, while others have called for greater ambition. The MBB, marking its 30th anniversary this year, said it will continue to advocate the Maltese government, the EU Commission, MEPs and BusinessEurope counterparts to ensure the final text of the ETS revision take proportionate account of the structural realities faced by island Member States.