EU splits on €4 billion carbon deal

Five governments said no. Five more sat it out. The rest of the EU’s member states still pushed through updated carbon-efficiency benchmarks for 2026-2030, the formulas that decide how many free pollution permits Europe’s factories will get over the next five years.

The decision gives energy-intensive industry roughly €4 billion in relief (BSS/AFP). For steel mills, ceramics plants and cement kilns, that is not an abstract climate accounting exercise. It is a cushion to keep production in Europe while the EU’s new carbon border tax is still being phased in.

How the formula works

The EU Emissions Trading System (ETS) is Europe’s carbon market. It puts a cap on emissions from heavy industry and power generation. Companies must hand over permits, known as EU Allowances, for every tonne of CO₂ they emit. Some are auctioned. Others are given away free to sectors considered at risk of "carbon leakage", where production moves to countries with looser climate rules (European Commission).

The benchmark is the key lever. For each product, Brussels looks at how much CO₂ the cleanest 10% of plants emit to make one unit of output (European Commission). A plant that beats the benchmark gets most of its compliance costs covered. A dirtier plant has to buy the gap on the market.

The 2026-2030 update resets those product-level yardsticks. Under the adjusted values, industry keeps free allocation covering about 75% of emissions on average. The formula also now includes indirect electricity emissions in 14 product benchmarks, cutting costs for factories that move towards electric processes (UmweltDialog). The next step is formal adoption by the Commission (Bloomberg).

Who voted no, and why

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

Italy has made the clearest case against the change. Its ceramics sector, with 242 companies, 25,550 workers and €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 Giorgia Meloni attacked EU "bureaucrats" for tightening rules she said the Council had asked them to soften (Il Fatto Quotidiano). Portugal did not vote against, but wrote to Brussels warning that changes to the benchmarks could hit ceramics, glass and cement before affordable alternatives are available (Jornal Económico).

The argument in favour, led by the Netherlands and the Commission, is that carbon pricing only works if it remains credible. CBAM, the Carbon Border Adjustment Mechanism, charges importers for the carbon embedded in goods they sell into the EU. Paired with the ETS, it is meant to reward cleaner European producers and make dirtier imports pay their way (NEa, European Commission DG TAXUD).

But there is a cost to generosity. Every permit handed out free is a permit not auctioned, which means less revenue for public decarbonisation funds. Climate groups argue that if free allocation is too generous, firms can end up facing almost no real carbon cost, weakening the investment signal the ETS was designed to send (Sandbag).

The CBAM timing gap

The politics are awkward because CBAM is arriving at the same time. From 2026, importers of cement, steel, aluminium, fertilisers and other covered goods start paying for the carbon embedded in their products. The payable share rises from 2.5% in 2026 to 100% by 2034 (Finnish Customs). Free allocation for EU producers is meant to fall away on the same timetable.

On paper, that is a clean swap. Factories lose free permits, but gain protection at the border against dirtier competitors.

In practice, the systems do not match neatly. ETS free allocation is calculated at installation level, using product benchmarks. CBAM works at goods level, using commodity codes (Finnish Customs). A factory, a product and an import category are not always the same thing. Industry also argues that CBAM has not yet proved it can provide full protection. Green steel, for example, may need power prices of about €50/MWh to remain investable in Europe, a level many producers still cannot reach (Eurometal).

The missing piece is the distributional detail. There is no public table showing the benchmark-by-benchmark changes, how much extra free allocation each member state gains, or the net effect once CBAM protection and national compensation schemes are included.

The Commission’s July ETS review is expected to look at whether future free allowances should be tied to investment obligations for decarbonisation (S&P Global). That will decide whether the €4 billion is a bridge to cleaner production or a subsidy with no real conditions. Until the figures are published, nobody outside Brussels can properly tell.