The ETS sets a cap on how much CO2 power stations and the heavy industry can emit, with the total volume of allowed emissions distributed to companies as permits.
Under the revised ETS directive, the cap on the volume of emissions will be reduced annually by 2.2%.
The number of allowances to be placed in the market stability reserve (MSR) will also be doubled temporarily until the end of 2023 to mop up excess emission allowances on the market.
In 2023, a new mechanism to limit the validity of allowances in the MSR will be put in place.
The reforms are expected to help the EU reach its target of cutting greenhouse gas emissions by at least 40% by 2030.