Ten States Seek Carbon Permit Surge

Ten EU countries are asking Brussels to ease the pressure in Europe's carbon market by putting more pollution permits into circulation. Sweden, Finland and Denmark say that would punish the companies that have already spent money cutting emissions. Both camps speak the language of climate targets, but the argument underneath is about money: which governments can afford to protect their own factories, and which ones need the EU system to do the protecting 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 changes to the ETS, the Emissions Trading System. That is the EU's main mechanism for making pollution expensive. Their demands are specific: remove fewer permits from the market each year, keep free permits for heavy industry for longer, and extend the Modernisation Fund, which uses ETS revenues to help lower-income member states, beyond 2030 (S&P Global). Poland's deputy climate minister Krzysztof Bolesta has argued that the annual cut in the cap should fall to just above 2% (Bankier.pl). Italy's industry minister Adolfo Urso has framed the same push as a defence of manufacturing competitiveness (Adnkronos).

The Nordic answer is that the carbon price only works if companies can trust it to rise. If scarcity is loosened, firms that have already paid for low-carbon steel, cleaner power or more efficient production are left wondering why they moved first (EnviWeb/ČTK). The ETS was built to reward early movers as the cap tightens. Weaken the cap, and the reward is diluted.

The ETS works in a fairly blunt way. The EU sets a ceiling on how much CO₂ power plants, factories and airlines can emit. Companies need one permit for every tonne they release. Each year, the ceiling falls, permits become scarcer, and pollution becomes more expensive (European Commission). In 2024, auctions of those permits raised €38.8 billion for government climate budgets (CER).

The Commission's reform package, expected this week, would add permits and slow the removal of free allowances. Analysts cited by OPIS expect the annual rate at which the cap shrinks to fall from 4.4% to roughly 3%–3.4% after 2030. That would release about 1–1.5 billion extra allowances and push carbon prices lower (OPIS).

The fiscal gap underneath

The easy version of the story is green Nordics versus reluctant eastern member states. That is too neat. Germany's own industry lobby, DIHK, wants free allocation extended and electricity-cost compensation maintained until the EU's carbon border charge, CBAM, has proved it can stop factories from moving production elsewhere (DIHK). CBAM is the EU's tariff on carbon-intensive imports, designed to stop European firms paying a carbon price while foreign competitors avoid it.

The difference is that Berlin has fiscal room. 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 including aluminium and fertiliser (Rijksoverheid, VEMW).

Poland, Romania and Bulgaria cannot write cheques on that scale. They need relief to come through the design of the ETS itself, because Berlin and The Hague can provide it through national budgets. The fight is really over where the cost of transition sits: with national treasuries, or inside the European carbon market.

Who gains, who loses

Looser scarcity helps incumbent heavy emitters and coal-dependent economies in the short term. But "industry relief" does not spread evenly. In Czechia, large ETS operators receive free permits and can still pass carbon costs on to customers, while district-heating companies and smaller firms must buy permits without the same protection (Aktuálně.cz/ČTK). Free allocation protects the big operators first. It does not necessarily reach the firms further down the chain.

Governments also lose from a softer market. If fewer permits are auctioned, or prices fall, there is 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). The problem may not be that carbon pricing is simply too high. It may be that governments are spreading the money it raises too thinly.

The Commission can give heavy industry more time, but only by weakening the scarcity that made the carbon market useful in the first place. The unanswered question is what governments do with that time: fund cleaner production, or make delay cheaper.