In an unprecedented reversal of its climate policy, the European Commission has presented a sweeping package of changes to the EU's Emissions Trading System (ETS).
The new plan aims to give heavy industry more time and financial resources to adapt to the green transformation in the face of tough global competition.
What does the EU's extraordinary proposal envisage?
The main pillar of the reform is the change to the so-called linear reduction factor (LRF), which determines the pace of reduction in the total volume of permitted emissions. Instead of the current pace of 4.3% per year, Brussels proposes to slow the reduction to 3.7% per year for the period 2031–2035 and until 1.7% after 2036. This effectively postpones the 2039 net-zero industrial emissions target until the end of the next decade.
Key relief for businesses include:
- Extension of free allowances: Free pollution permits in key sectors such as steel and cement will be maintained until 2038, instead of being phased out in 2034.
- Financial stimulus ahead: Companies with ready-made decarbonization plans will receive 80% of their free allowances in advance. The remaining 20% will be provided after the actual implementation of the investments.
- 100 billion euro financial injection: An Industrial Decarbonisation Bank (IDB), powered by carbon market revenues, is being created to support companies' transition.
Pressure from member states and business unions
The move comes after an organised pushback from a coalition of ten member states, including Poland, Italy and Bulgaria. They warned Brussels that excessive environmental taxes risk literally driving factories out of Europe. According to a statement by the Polish Ministry of Climate, quoted in the world media, for the first time there is a real softening of the EU's positions in favor of industrial stability.
At the same time as loosening restrictions on factories, the EC proposes expanding the scope of the ETS to smaller ships, waste incineration and international flights of up to 5,000 km, which will affect destinations in the Middle East and Turkey.
Sources: Reuters, Politico, TVP World