Ten states push cheaper carbon permits

Ten EU countries want Brussels to put more pollution permits into Europe's carbon market. Sweden, Finland and Denmark say that would punish the companies that have already spent money cleaning up their production. Both sides speak the language of climate targets. The real argument is about money: which governments can afford to protect their factories from home, and which ones need the EU system to do that work 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 down the ETS, the Emissions Trading System that makes power plants, factories and airlines pay for the carbon they release. They want fewer permits removed from the market each year, free permits for heavy industry to last longer, and the Modernisation Fund, which uses ETS revenues to help lower-income member states, to continue after 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 push as a defence of manufacturing competitiveness (Adnkronos).

The Nordic response is that the whole point of the ETS is a stable, rising carbon price. If permits are no longer predictably scarce, companies that moved early into low-carbon steel or clean power lose the commercial advantage they were promised (EnviWeb/ČTK). The system was built so that early movers benefit as the cap tightens. Loosen the cap, and that reward is diluted.

The ETS works through a fairly direct mechanism. The EU sets a ceiling on how much CO₂ covered sectors 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 phasing out of free allowances. Analysts cited by OPIS expect the annual rate at which the cap shrinks to fall from 4.4% to about 3%–3.4% after 2030. That would release roughly 1–1.5 billion extra allowances and push carbon prices lower (OPIS).

The fiscal gap underneath

The easy version of the story, green Nordics against reluctant eastern states, misses the mechanism. Germany's industry lobby, DIHK, also wants free allocation extended and electricity-cost compensation kept until the EU's carbon border charge, CBAM, proves it can stop factories moving production outside Europe (DIHK). The difference is that Berlin has the fiscal room to act. 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 on that scale. They need the ETS rules themselves to provide relief that richer governments can deliver through national budgets. For Malta, the point is familiar from other EU files: a common rule does not land equally when national treasuries have very different room for manoeuvre. The argument is not only about climate ambition, but about which level of government absorbs the cost of the transition.

Who gains, who loses

Looser scarcity helps incumbent heavy emitters and coal-dependent economies in the short term. But "industry relief" does not reach everyone in the same way. In Czechia, large ETS operators receive free permits while still passing carbon costs on to customers. District-heating companies and smaller firms, meanwhile, buy permits without equivalent protection (Aktuálně.cz/ČTK). Free allocation protects the large players first. It does not automatically travel down the supply chain.

Governments also lose when scarcity is softened. 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). The problem may not simply be that carbon pricing is 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 gives the carbon market its value. The unanswered question is what governments do with that time: fund cleaner production, or merely make delay cheaper.