EU splits over €4 billion carbon relief

Five countries voted against. Five others abstained. The measure still passed: EU governments approved updated carbon-efficiency benchmarks for 2026-2030, the formula that decides how many free pollution permits Europe's factories receive over the next five years. The change gives energy-intensive industry roughly €4 billion in relief (BSS/AFP). For Malta, which reportedly voted no, this is not a remote Brussels file. Carbon costs feed into the price of cement, steel and industrial inputs that small island economies import, build with and eventually pass on.

How the formula works

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

A benchmark is the yardstick used to decide how many free permits a factory gets. It is set product by product, based on how much CO2 the cleanest 10% of plants emit to produce one unit of that product (European Commission). A cleaner factory gets most of its compliance cost covered. A dirtier one has to buy the missing permits 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 counts indirect electricity emissions in 14 product benchmarks, cutting costs for factories that switch 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 rests on media reporting for now.

Italy's objection is the clearest. 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 accused EU "bureaucrats" of 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 punish ceramics, glass and cement before viable alternatives are available (Jornal Económico).

The argument in favour, pushed by the Netherlands and the Commission, is that carbon pricing only works if it remains credible. CBAM, the Carbon Border Adjustment Mechanism, is meant to charge importers for the carbon embedded in their products, so efficient European producers are not undercut by dirtier imports (NEa, European Commission DG TAXUD). But every free permit is also a permit the state does not auction, which means less money for public decarbonisation funds. Climate groups warn that generous free allocation can leave firms facing almost no real carbon cost, weakening the investment signal the ETS was built to create (Sandbag).

The CBAM timing gap

The timing is the problem. CBAM is being phased in at the same time. From 2026, importers of cement, steel, aluminium, fertilisers and other covered goods start paying for the carbon built into their products. The payable share rises from 2.5% in 2026 to 100% by 2034 (Finnish Customs). Free allocation for EU producers is supposed to disappear on the same timetable. In theory, the bargain is straightforward: factories lose free permits but gain border protection.

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

There is still no public table showing the benchmark-by-benchmark changes, how the extra free allocation is divided between member states, or the net effect once CBAM protection and national compensation schemes are counted. The Commission's July ETS review is expected to examine 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 another subsidy without clear conditions. Until Brussels publishes the data, Malta and the rest of the EU are voting on a distributional fight whose winners and losers are still partly hidden.