EU Commission to propose free emissions allowances for industry beyond current cut-off period – media report
Handelsblatt
The European Commission plans to propose extending free CO2 allowances for industry under the Emissions Trading System (EU ETS) beyond the agreed cut-off period, business daily Handelsblatt reported, citing senior EU officials. In a deal from December last year, member state governments and the European Parliament had demanded that the Commission proposes to revise the ETS in a way that would allow for a limited amount of emissions after 2039, and "considers a slower phase-out pathway for free allocation of allowances from 2028 onwards."
The ETS is the EU's flagship climate policy and puts a price on emitting planet-heating CO2. Under the current regime, industry must hold a permit to emit CO2. Most permits, also known as allowances, are auctioned, while a share is allocated free of charge to industry in international competition. The aim is to prevent companies from relocating production to countries with weaker climate policies to avoid high carbon costs. Free allocations are due to be reduced from this year and phased out by 2034, while overall auctioning in the ETS for the energy and industry sectors is scheduled to end in 2039, according to current rules.
The Commission plans to stretch out both free allocations and auctioning, which would slow planned emissions cuts from European industry, wrote Handelsblatt. The proposal is due in July and would require approval by EU countries and the European Parliament, the newspaper reported. Handelsblatt did not provide details, such as whether the total number of allowances in the ETS would be changed to allow for more emissions, or the system simply be stretched over more years than currently planned.
Energy-intensive industries and senior German politicians have argued they need more time to transition to net-zero and that high CO2 costs threaten competitiveness. Chemicals group BASF said its costs could rise to nearly one billion euros by the end of the next decade if free allocations are abolished, and the EU-ETS isn't reformed, reported Handelsblatt. Companies operating in the United States and Asia do not face comparable costs, putting European firms at a disadvantage, BASF head Markus Kamieth argued.
To protect industry from outside competition, the EU introduced the Carbon Border Adjustment Mechanism (CBAM), which applies equivalent CO2 costs to certain products imported into the bloc. CBAM came into force this year. The border levy is designed to rise gradually as the number of free permits declines. Some industry leaders, including Kamieth, have questioned whether it will adequately protect European companies.
Germany's economy minister Katherina Reiche (CDU) said it was "absolutely clear" that CBAM must function effectively before free certificates for particularly energy-intensive companies can be phased out, Handelsblatt reported.
The newspaper said the EU could still meet its weaker 2040 climate target if the ETS is reformed as proposed, but that achieving climate neutrality by 2050 would become more difficult.
The European Commission has announced a comprehensive "climate package" for the second half of 2026 to amend the union's climate and energy legislation to reach targets in the period after 2030. A review of the ETS and proposals to reform the system is part of this package and expected in July.