EPP pushes to soften EU carbon market reforms in bid to shield industry

EPP Pushes to Soften EU Carbon Market Reforms to Protect Industry

EPP pushes to soften EU carbon - The European People's Party (EPP) has called on Climate Action Commissioner Wopke Hoekstra to re-evaluate the EU’s carbon market framework, the Emissions Trading System (ETS), by granting additional free pollution allowances to heavy industries beyond 2030. This initiative, outlined in an internal policy document shared with Euronews, is set to influence the upcoming European Commission proposal to reform ETS rules, expected by 15 July 2026. The EPP argues that maintaining industrial competitiveness is critical alongside achieving emissions reductions, emphasizing the need for a balanced approach to climate policy.

Industrial Competitiveness and Climate Goals in Tension

According to the EPP’s document, the ETS has proven effective in cutting greenhouse gas emissions by nearly half since its inception in 2005. However, the party asserts that further adjustments are required to ensure the system does not undermine Europe’s manufacturing sector. The document highlights the importance of shielding industries from excessive carbon costs, particularly as they face global competition and may not immediately reduce emissions without financial support.

"The system has achieved these emission reductions in a market-based and economically efficient manner," the document states. "Nevertheless, further adjustments are needed to safeguard industrial competitiveness and to ensure a more effective and economically sustainable decarbonisation pathway."

Free allowances, or pollution permits, are a key feature of the ETS, allocated to industries that emit significant quantities of carbon due to their energy-intensive nature. These permits allow companies to emit without paying the full cost, as they compete with nations lacking robust carbon pricing mechanisms. The EPP believes that extending this flexibility beyond 2030 will provide the necessary breathing room for sectors that cannot yet fully transition to low-carbon operations.

Proposed Changes to the Linear Reduction Factor

The EPP’s internal document proposes modifying the Linear Reduction Factor, which steadily decreases the total number of ETS allowances available each year. The party advocates lowering this factor from 2030 in line with the European Climate Law’s 85 percent domestic ambition. This adjustment would ensure continued free allocations for industries like manufacturing, maritime transport, and aviation until at least 2039, addressing residual emissions that are difficult to eliminate in the short term.

Under the current 2026–2030 timeline, industries are set to receive free allowances covering approximately 75 percent of their emissions, according to the European Commission. This estimate suggests a financial burden of around €4 billion for the sector during that period. The EPP, which is the political party of Commission President Ursula von der Leyen, aims to extend this support beyond 2030, aligning with its broader strategy to cushion industries against the pressures of climate transition.

Industry Advocacy and Political Backing

Support for the EPP’s stance has already gained traction among certain EU countries and industrial groups. EU leaders are now considering revising the plan to cut polluting permits for heavy industry, as announced during the June summit of Heads of State and government. The Council’s conclusions note that the Commission is expected to present a concrete proposal by mid-July 2026, balancing the ETS’s role in climate action with the need to protect industrial interests.

"The European Council takes note of the Commission’s intention to come forward with a concrete proposal by mid-July 2026 on the review of the ETS system, including on free allowances (...) while preserving the essential role of the ETS in the climate and energy transition," the Council stated.

Despite these efforts, the ETS debate remains complex. Some industries, such as steel and chemicals, are now advocating for stronger ETS support, arguing that reducing allowances could slow their transition to sustainable practices. These supporters claim that easing the carbon price might inadvertently harm innovation and investment in green technologies. The EPP’s proposal has sparked a divide, with factions within the EU vying to shape the future of the system.

Steelmakers’ Lobbying Efforts

Several European steelmakers, including Outokumpu Corporation, SSAB, Salzgitter AG, Saarstahl, Dillinger, and SHS Stahl-Holding-Saar, have publicly lobbied the Commission to maintain the ETS’s integrity. In a joint statement released on 30 June, these companies warned against measures that could artificially depress the carbon price, stressing that such changes might weaken Europe’s position in the global market.

"Weakening the ETS would not strengthen Europe’s competitiveness. On the contrary: It would erode investment certainty, penalise early movers and delay the industrial transformation Europe needs," the industry leaders argued.

The steelmakers highlighted that high electricity costs, driven by fossil fuel dependencies and infrastructure gaps, are the primary challenge to competitiveness. They argue that the ETS should not bear the brunt of these issues, as the system’s core function is to incentivize emissions reductions, not compensate for external factors. Their stance reflects a growing concern among industrial stakeholders that overly strict carbon pricing could stifle economic growth.

Broader Implications for the EU’s Climate Strategy

As the EU seeks to meet its climate targets, the EPP’s push for softened ETS reforms raises questions about the system’s long-term effectiveness. While the ETS has been a cornerstone of the bloc’s environmental policy, critics warn that reducing the number of allowances could weaken its ability to drive decarbonisation. The challenge lies in finding a compromise that maintains the ETS’s role as a climate tool while addressing the economic realities of heavy industries.

Industry leaders and policymakers alike are now weighing the trade-offs between environmental goals and economic stability. The EPP’s call for extended free allocations beyond 2030 could signal a shift toward more industry-friendly carbon policies, potentially altering the pace of the EU’s transition to a low-carbon economy. As the European Commission prepares to unveil its revised proposal, the debate over the ETS’s design will likely intensify, with implications for both climate action and industrial resilience.

With the EU’s energy transition relying heavily on market mechanisms, the balance between ambition and practicality remains a central issue. The EPP’s intervention underscores the political dynamics at play, as different factions within the bloc strive to align climate policy with economic priorities. Whether this approach will strengthen or weaken the ETS’s impact on emissions reduction remains to be seen, as the next phase of reforms unfolds in the coming months.