EU states split over €4 billion carbon deal

Five countries voted against. Five more abstained. EU member states still approved updated carbon-efficiency benchmarks for 2026–2030, deciding how many free pollution permits Europe's factories will receive over the next five years. The update provides roughly €4 billion in relief for energy-intensive industry (BSS/AFP). That money is industrial life-support: keeping steel mills, ceramics plants and cement kilns running in Europe while a new border tax slowly phases in to protect them from dirtier competitors abroad.

How the formula works

The EU Emissions Trading System (ETS) is Europe's carbon market. It caps total emissions from heavy industry and power generation. Companies must surrender permits — called EU Allowances — for every tonne of CO₂ they emit. Some permits are auctioned. Others are given away free to sectors at risk of "carbon leakage," meaning factories simply relocating to countries with weaker climate rules (European Commission).

A benchmark is the formula that decides how many free permits each factory gets. It is set per product, based on how much CO₂ the cleanest 10% of plants emit to make one unit of that product (European Commission). If your factory is cleaner than the benchmark, free allocation covers most of your compliance costs. If it is dirtier, you buy the shortfall on the market.

The 2026–2030 update recalibrates these product-level yardsticks. Under the adjusted values, industry keeps free allocation covering about 75% of emissions on average, and the formula now also accounts for indirect electricity emissions in 14 product benchmarks, reducing costs for factories switching to electric processes (UmweltDialog). Formal Commission adoption is the next step (Bloomberg).

Who voted no, and why

Poland, Italy, Lithuania, Latvia and Malta reportedly voted against, according to Polish and international media (RMF24, Bloomberg). No official roll-call has been published, so the list comes from media reports only.

Italy's opposition is the most concrete. The country's ceramics sector — 242 companies, 25,550 workers, €7.5 billion in turnover — faces direct ETS costs rising from €70 million to €120 million a year under the new benchmarks (Il Resto del Carlino). Prime Minister Meloni attacked EU "bureaucrats" for tightening rules she argued the Council had mandated to soften (Il Fatto Quotidiano). Portugal, without opposing outright, wrote to Brussels warning that benchmark changes could penalise ceramics, glass and cement before economically viable alternatives exist (Jornal Económico).

The pro-benchmark case runs through the Netherlands and the Commission: credible carbon pricing, paired with border protection through CBAM (the Carbon Border Adjustment Mechanism, which charges importers for the carbon embedded in their products), rewards efficient European producers and penalises dirty imports (NEa, European Commission DG TAXUD). Every permit given away free is one not auctioned, meaning less revenue for public decarbonisation funds. Climate groups warn that generous free allocation can leave firms with near-zero effective carbon costs, gutting the investment signal the ETS exists to send (Sandbag).

The CBAM timing gap

The timing matters because CBAM is phasing in simultaneously. From 2026, importers of cement, steel, aluminium, fertilisers and other covered goods start paying for the carbon embedded in their products, with the payable share rising from 2.5% in 2026 to 100% by 2034 (Finnish Customs). Free allocation to EU producers is supposed to phase out on the same schedule. In theory, one replaces the other: factories lose their free permits, but gain border protection against dirtier competitors.

In practice, the two systems do not line up cleanly. ETS free allocation is calculated at the installation level using product benchmarks; CBAM adjustments apply at the goods level using commodity codes (Finnish Customs). A factory, a product and an import category are not always the same thing. And industry argues CBAM is not yet tested enough to guarantee protection: green steel, for instance, may need power prices around €50/MWh to remain investable in Europe, a threshold many producers cannot yet meet (Eurometal).

No public table exists showing the benchmark-by-benchmark changes, the distribution of extra free allocation by member state, or the net effect after CBAM protection and national compensation schemes. The Commission's July ETS review is expected to explore tying future free allowances to investment obligations for decarbonisation (S&P Global). That review will determine whether the €4 billion functions as a bridge to cleaner production or as a subsidy with no strings attached. Until the data is published, nobody outside Brussels can tell.