The European Commission has proposed relaxing the pace of emissions cuts under the bloc's flagship carbon trading system, extending free pollution permits for heavy industry until 2038 and slowing the annual reduction in available allowances. The changes mark a significant retreat from the EU's previous timeline, which would have phased out free permits by 2034.
Under the revised proposals, some industries could obtain emission allowances until 2038 instead of 2034, provided they commit to investing in decarbonisation efforts within Europe. The Commission would also offer 80% of free permits up front to companies with credible investment plans, with the remaining 20% released once those investments are made. The proposals still need approval from EU countries and lawmakers, a process that could take a year.
The Competitiveness Calculation
EU climate commissioner Wopke Hoekstra framed the shift as pragmatic. "We are adopting a more business-friendly and, may I say so, savvy approach," he said. The European Commission said the changes would ensure the emissions trading system was aligned with the EU's goal to reduce carbon emissions by 90% by 2040, compared with 1990 levels.
The ETS, introduced in 2005, requires Europe's industries and power plants to buy a permit for every tonne of carbon dioxide they emit. Companies can buy extra permits or trade them. Some businesses receive permits for free to help them compete with foreign firms that don't pay carbon costs. The system also caps the number of permits released each year to ensure emissions decrease.
The Commission has proposed slowing the rate at which this cap is lowered each year to around 3.7% from 2031 and then to 1.7% from 2036, down from 4.3% currently. That deceleration reflects mounting pressure from member states concerned about the system's impact on energy prices and industrial competitiveness.
Italy's Criticism and Poland's Push
The ETS has come under criticism from a number of member states, with Italy in particular condemning the trading scheme as a de facto tax that has helped keep energy prices artificially high. Polish climate minister Paulina Hennig-Kloska said Poland would push to weaken the policy further. "For the first time, we are seeing a softening of the stance rather than a toughening of it — this is a huge success for Poland. Although we will fight for more," she said.
The proposals also extend free permits until 2038, rather than ending them in 2034, when they were to be replaced by a carbon border charge on imports for some sectors. That extension gives European manufacturers breathing room as they face competition from Chinese and American rivals operating under less stringent climate rules.
Green Politicians Object
Green politicians were less impressed. A German member of the European Parliament, Michael Bloss, said the plans would result in "gigantic climate pollution" and the next generation would have a worse quality of life as a result.
Global temperatures have been rising over the past century due to human activities that release greenhouse gas emissions, but local or regional geography shapes the speed at which different places are warming. As Europe is warming particularly quickly, it's being more exposed to frequent and stronger spells of extreme heat. This year, more than a dozen countries across western, central and eastern Europe broke their June temperature record. Some countries, such as Hungary, Czech Republic and Germany, faced temperatures above 40C.
Why This Matters:
The Commission's retreat on ETS tightening reveals the growing tension between climate ambition and industrial reality. Free permits were supposed to end in 2034 to force decarbonisation. Now they'll run until 2038. The annual cap reduction slows from 4.3% to 1.7% by 2036. That's not a technical adjustment — it's a recognition that European manufacturers can't shoulder carbon costs their global competitors don't pay. Italy's complaint that the ETS functions as a tax on energy is not fringe politics; it reflects voter frustration with high bills and deindustrialisation. Poland's demand for further weakening shows the east-west split on climate policy remains unresolved. The question is whether Europe can decarbonise without pricing its own industries out of existence. The answer will determine whether the Green Deal survives contact with electoral reality.