The battle is on. On one side, the defenders of a green economy, who warn that the closure of the Strait of Hormuz and the fierce heatwave that has caused at least 12,000 additional deaths in Europe are a reminder of the climate crisis. On the other, the pressures from industry, which is already suffering the consequences of Chinese competition and US tariffs, and calls for lowering the cost of energy.
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Brussels seems to have chosen to try to reconcile all parties. Following the course set in the last two years, the European Commission has proposed a reform of the emissions trading system (ETS), one of the EU’s main tools to combat climate change, which maintains the goal of a net 90% reduction in emissions by 2040, but at the same time softens and slows the annual reduction trajectory in the decade after 2030 to protect industrial competitiveness. The approach is twofold: it allows industries to continue emitting CO₂ for longer, while offering greater financial support to invest in clean technologies in Europe.
Cornerstone of climate policy
Italy, Poland, and the Czech Republic want to dismantle the emissions trading system
It is a very technical issue, but key for many EU countries. It concerns the toll that forces large polluting industries to buy permits to emit CO₂, something that some European countries, such as Italy, Poland, and the Czech Republic, want to dismantle. That is, the emission rights, or permits to pollute, that the most energy-intensive industries (such as steel, cement, or chemicals) must buy to cover their emissions.
The main flexibility mechanism now introduced by Brussels is to reduce the speed at which the emissions cap decreases, which will go from 4.4% (between 2028 and 2030) to 1.7% annually between 2036 and 2040. This will be compensated with other measures, such as, from 2036, the indirect use of up to 2% of international carbon credits. Financing decarbonization projects outside the EU whose emission reductions can be counted towards meeting its targets, always supervised by the Commission.
Another pillar of the reform concerns free emission rights. Under the European system, the total number of emission rights available on the market progressively decreases to encourage companies to contain their emissions. To facilitate this path, companies are allocated free rights, which must be gradually reduced and were supposed to disappear by 2034.
Now, Brussels extends these permits until 2038 and introduces a key change: it will no longer give these permits away without asking for anything in return. Companies will receive 80% of their permits for free if they present a clear plan to stop polluting, while the remaining 20% will be withheld and only given if they demonstrate, after five years, that they actually made those investments and reduced their emissions. At the same time, some more affected industries, such as chemicals or refineries, will receive an extra aid of 4 billion euros in climate permits to facilitate their transition until 2030.
“It is true that many companies have come with their positions, others ask to weaken the system and have requested flexibilities. Our job is to find a path, not halfway, but one that does justice to our climate ambition and takes into account the opportunity of companies that have made investments and those that have pending ones,” defended the Climate Commissioner, Wopke Hoekstra.
In this way, the Commission argues, large companies will dedicate much more effort to investments on European soil. “If we simply let the industry move abroad, we will all lose. Production outside Europe will not be more environmentally friendly, so the climate would lose, and at the same time, companies would lose and people would lose their jobs,” Hoekstra defended.
These new proposals will not be entirely welcomed in Spain, which is part of the group of countries, like Sweden or Denmark, that urge maintaining this cornerstone of EU climate policy. In a letter, the third vice president and Minister for Ecological Transition, Sara Aagesen, states that “maintaining its ambition, integrity, and stability is essential to achieve European climate goals.” The Commission’s proposal is not final, as now member states and the Parliament still have to agree.
Boost to clean energy
A plan to raise the electrification target from 20% to 32% in four years
At the same time, the European Commission has presented a parallel plan that seeks to electrify industry, transport, and buildings much more, correcting the price disadvantage compared to gas and using regulation so that the electric option is the most logical and attractive. The goal is to reduce dependence on imported fossil fuels — only the Iran crisis has meant an extra cost of 50 billion euros for Europeans — and break the current 23% electrification rate to raise it to 32% by 2030.
For this, for example, it wants to establish a new legal principle so that taxes on electricity are not higher than those on gas, removing one of the most criticized economic barriers. Or in building construction, which represents half of the gap in clean energy use; the main focus is replacing gas boilers with heat pumps, a transition that could significantly reduce costs. For industry, it wants to prioritize electrification of sectors where technologies are already available but adoption is slow, and create concrete plans for each sector. Also, create a direct link between revenues generated by the ETS and incentivize industry electrification.
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