CO₂: EU eases pressure and grants more free emission allowances to industries

The European Commission revisits the scheme that, more than any other, sets the price for industrial emissions on the continent. The carbon market - the ETS - is about to undergo a revision aimed at granting companies a larger share of free allowances to emit CO₂.

A move which, according to estimates circulating in internal documents and confirmed by Reuters, could result in some €4 billion in avoided costs for industries between 2026 and 2030. While the proposal does not alter the very structure of the system, it does overhaul the way it operates on one sensitive point: the method of allocating allowances.

The new scope of free emissions

Under the Commission's proposal, companies will continue to receive free allowances covering, on average, almost 75% of their emissions. What's new is the extension of the calculation to indirect emissions, i.e. those linked to the energy consumed in production processes.

This technical adjustment mechanically increases the total number of allowances allocated without payment. In financial terms, the Commission estimates the impact at around €4 billion over the period 2026-2030, as reported in internal documents consulted by Reuters.

The pressure of industrial competitiveness

This revision comes against a political backdrop that has been moving in the same direction for months: governments and heavy industries are calling for more flexibility on the cost of CO₂. The reasons are well known. The ETS system obliges companies to buy permits for each tonne of CO₂ produced, a mechanism designed to encourage decarbonization but increasingly perceived as a financial burden in a fragile economic climate. Unsurprisingly, several European capitals have expressed fears of a loss of competitiveness against countries with less stringent environmental rules.

Brussels, in its internal assessments, speaks explicitly of a response to "industry concerns" already built into the system's flexibility margins.

The ETS break-even point

The carbon market is Europe's main instrument for reducing emissions: it sets a global cap and allows companies to trade pollution permits. Set up in 2005, it now covers some 40-45% of the Union's emissions, and is the economic foundation of European climate policy.

However, its operation has always been a hybrid: on the one hand, the logic of the market; on the other, the need to protect sectors deemed exposed to global competition. Free quotas were created precisely as a compensatory measure, and their cyclical extension illustrates the difficulty of reducing this protection without collateral effects on industry.

An open-ended reform

The Commission's proposal is by no means definitive. The package will have to be formalized by June, and is part of the broader overhaul of the system expected in the coming months. Elements still under discussion include new sectoral parameters and the pace of gradual reduction in long-term free allowances. In the background, the question is not technical but political: how high can the price of carbon rise without weakening Europe's industrial base?

Between transition and industry

The ETS review does not mark a retreat from European climate policy, but rather highlights its most complex phase: that in which the economic instruments of decarbonization collide with competitiveness constraints. The system remains at the heart of Europe's emissions strategy. But its evolution shows a less linear trajectory than is often portrayed: regulation that adapts, corrects and absorbs pressure. And it is precisely for this reason that it remains one of the most sensitive areas of the Union's industrial policy.

Source : Reuters