EU unveiling plan to extend industrial emissions allowances and ease ETS reduction pace

The European Union has proposed measures that would slow cuts to businesses’ greenhouse gas emissions limits, as part of a major climate policy overhaul.

The reforms would relax the rules of the bloc’s Emissions Trading System (ETS), giving businesses additional time to reduce their carbon output beyond the previous schedule.

Under the changes, certain sectors could secure emission allowances until 2038 rather than 2034, provided they commit to investing in decarbonisation initiatives.

The proposals still require approval from EU countries and lawmakers, a process that could span up to a year.

“We are adopting a more business‑friendly and, may I say so, savvy approach,” said EU climate commissioner Wopke Hoekstra.

The European Commission, which drafts legislation for the EU’s 27 member states, said the changes would align the ETS with the EU’s objective of cutting carbon emissions by 90 % by 2040, relative to 1990 levels.

The ETS, introduced in 2005, remains the EU’s principal instrument for curbing greenhouse‑gas emissions.

However, the system has drawn criticism from several member states, with Italy especially condemning it as a de facto tax that has helped maintain artificially high energy prices.

Under the ETS, European industries and power plants must purchase a permit—or allowance—for each tonne of carbon dioxide emitted, creating a financial incentive to invest in cleaner technologies.

Companies may acquire additional permits or trade existing ones. Certain firms receive free allowances to help them compete with foreign competitors that do not incur carbon costs.

The ETS also caps the annual number of permits released, ensuring emissions decrease over time.

The European Commission has proposed slowing the annual reduction rate of this cap to roughly 3.7 % starting in 2031, and then to 1.7 % from 2036, down from the current 4.3 %.

Additionally, the EU proposes extending free permits through 2038, instead of phasing them out in 2034, when a carbon border charge on imports for certain sectors was set to take effect.

The Commission would also provide 80 % of free permits upfront to companies with plans to invest in decarbonisation within Europe; firms would receive the remaining 20 % after those investments are completed.

Polish climate minister Paulina Hennig‑Kloska, responding to the proposals, said her country would push to further weaken the policy.

“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.

Green politicians expressed disappointment. German MEP Michael Bloss said the plans would cause “gigantic climate pollution” and that future generations would face a diminished quality of life as a result.

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