Ten nations demand 1.5 billion more carbon permits

Ten EU countries want to flood Europe's carbon market with extra pollution permits. Sweden, Finland and Denmark say that would betray every company that already invested in going green. Both sides invoke climate targets. The real divide is fiscal: which governments can afford to shield their factories at home, and which ones need Brussels to do it for them.

The coalition and the counter-punch

Poland, Italy, Greece, Czechia, Romania, Bulgaria, Slovakia, Cyprus, Estonia and Hungary are pressing the European Commission to slow the ETS (the Emissions Trading System, Europe's main tool for making pollution expensive). They want fewer permits removed from the market each year, free permits for heavy industry to last longer, and the Modernisation Fund (which channels ETS revenues to lower-income member states) to continue after 2030 (S&P Global). Poland's deputy climate minister Krzysztof Bolesta has argued the annual cap cut should drop to just above 2% (Bankier.pl). Italy's industry minister Adolfo Urso framed the push around protecting manufacturing competitiveness (Adnkronos).

The Nordics counter that a stable, rising carbon price is the whole investment case. Without predictable scarcity, companies that already spent on low-carbon steel or clean power get punished for moving first (EnviWeb/ČTK). The ETS was designed so that early movers profit as the cap tightens. Loosen it, and the reward disappears.

The ETS itself works on a simple principle: the EU caps how much CO₂ power plants, factories and airlines can emit. Companies must hold one permit for every tonne they release. The cap shrinks each year, permits get scarcer, and the price of polluting rises (European Commission). In 2024, permit auctions raised €38.8 billion for government climate budgets (CER).

The Commission's reform package, expected this week, would add permits and slow the phase-out of free allowances. OPIS-cited analysts expect the annual rate at which the cap shrinks to fall from 4.4% to around 3%–3.4% after 2030, releasing roughly 1–1.5 billion extra allowances and pushing carbon prices down (OPIS).

The fiscal gap underneath

The simple story — green Nordics against reluctant eastern states — misses what drives positions. Germany's own industry lobby, DIHK, wants free allocation extended and electricity-cost compensation kept until the EU's border carbon charge (CBAM, a tariff on carbon-intensive imports) proves it can stop factories from relocating (DIHK). The difference is that Berlin can pay. Germany has opened €5 billion in climate contracts for difference, long-term deals that cover the extra cost of low-carbon production, for steel, chemicals, cement and ceramics (VEA). The Netherlands is expanding its own compensation scheme with more than €318 million available this year for sectors from aluminium to fertiliser (Rijksoverheid, VEMW).

Poland, Romania and Bulgaria cannot write cheques like that. They need the ETS design itself to deliver the relief that Berlin and The Hague provide through national budgets. The fight is over which level of government absorbs the transition cost.

Who gains, who loses

Softer scarcity helps incumbent heavy emitters and coal-dependent economies in the short term. But "industry relief" is not evenly shared. In Czechia, large ETS operators receive free permits yet still pass carbon costs through to customers, while district-heating companies and smaller firms buy permits without equivalent protection (Aktuálně.cz/ČTK). Free allocation protects big players. It does not reach down the supply chain.

Governments lose too. Fewer permits auctioned, or lower prices, means less money for climate investment. Club Economic found that only 8% of ETS revenues spent by member states could be traced to direct support for industrial decarbonisation (Club Economic). Carbon pricing may not be too high. Governments may just be spending the money it raises too thinly.

The Commission can buy heavy industry more time, but only by weakening the scarcity that made the carbon market valuable. Whether governments use that time to fund cleaner production or simply lower the price of delay is not a question the reform package answers.