EU Summit Exposes Deep Divide Over Carbon Market and Climate Goals

The EU’s Emissions Trading System took center stage at a Brussels summit of European leaders on Thursday and Friday, exposing deep divisions that had already surfaced in recent talks among the bloc’s environment ministers.

Marathon negotiations running late into Thursday night pitted the leaders of the three Nordic member states against the Visegrad Four—Hungary, Slovakia, the Czech Republic, and Poland—over the future direction of the EU’s Emissions Trading System.

Italy and Greece aligned with the Visegrad Four, underscoring the carbon market as a central flashpoint as multiple capitals tie the ongoing energy price crisis to the cost of EU carbon allowances.

Designed to make companies pay for their pollution, the ETS aims to cut emissions while steering industry toward cleaner investments. Since launching in 2005, emissions from covered sectors have fallen by 51%, the European Commission reports.

The system currently applies to heavy industry, power generation, aviation, and shipping. A summer review proposed by the Commission is expected to expand coverage to international aviation, landfills, and incinerators.

Finland, Denmark, and Sweden cautioned leaders on Thursday that weakening the ETS would erode confidence in clean-tech investment and disadvantage early movers.

“Any weakening of the ETS would undermine the predictability that investment decisions rely on and could slow industrial decarbonisation,” states a letter from the three countries reviewed by Euronews.

Czech Prime Minister Andrej Babis launched a sharp attack on the ETS and carbon taxes, blaming market speculators for undermining Europe’s competitiveness.

“Someone is making billions at the expense of European industry, which is already in decline and facing serious problems,” Babis told reporters on Thursday.

Babis dismissed EU climate policy as “ideological” and detached from economic reality. He argued that carbon allowance prices have soared far beyond initial forecasts, saying the system rewards financial speculators while penalizing traditional manufacturers and ordinary citizens.

Babis and Italian Prime Minister Giorgia Meloni have recently called on Brussels to deliver urgent economic relief to struggling European manufacturers.

EU member states are leveraging current geopolitical pressures to reshape carbon market rules according to their national energy profiles. Nations reliant on fossil fuels are seeking lower carbon price pressure, while environmentally progressive members insist on firm transition deadlines.

Nordic leaders warn that lowering ambition would shift the emissions-reduction burden onto other economic sectors where mitigation is often more challenging and politically sensitive.

“This is not a new issue, but the current context lends it new urgency. Leaders outlined their positions amid ongoing legislative negotiations,” one EU diplomat said.

ETS as a Driver of Decarbonisation

Supporters view the ETS as a critical enabler of decarbonisation, generating revenue while incentivising heavy industry to invest in green technology to avoid rising carbon costs.

“The ETS has played an important role in decarbonisation. We must preserve the price signal and keep the system functioning through targeted corrective measures,” a second EU diplomat told Euronews.

“We must preserve the system’s structural mechanisms while offering short-term flexibility to the member states most affected,” the diplomat added.

EU leaders called on the Commission to explore additional short-term interventions and urged legislators to accelerate work on the Market Stability Reserve, the mechanism that regulates allowance supply to curb carbon-market price volatility and, ultimately, carbon pricing.

The Fight Over ETS2

A proposal by the Visegrad Four, supported by Italy and Greece, to postpone the next phase of the Emissions Trading System (ETS2) until 2030 stalled late Thursday.

The four nations argued that households and small businesses would inevitably face higher costs, citing enormous price disparities between EU regions and countries, especially in Eastern Europe.

ETS2 is the new carbon market slated to cover road transport and building fuels starting in 2029.

The mechanism was previously delayed due to concerns over its social impact on vulnerable households, as it is expected to raise energy bills further despite EU efforts to cap price spikes.

Despite objections from the six countries, one EU diplomat told Euronews that the proposed amendments “would never secure the required unanimity.”

“There is little support for it, and they know it. That is why they are pushing it at the European Council rather than the Environment Council, where no majority exists,” another diplomat said.

Nevertheless, the six countries succeeded in securing a Commission-led impact assessment to determine ETS2’s design and safeguards, as noted in the Council conclusions.

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