The European Parliament is seeking to ease the pressure exerted by the carbon market on industry

The European People’s Party — the largest political group in the European Parliament — is seeking to ease the financial pressure on companies from the EU carbon market. According to a draft position paper, it is proposed to slow down the planned rate of emissions reductions and extend the validity of free emission allowances. This is reported by Reuters.

The European Union is currently preparing for a major overhaul of its Emissions Trading Scheme (ETS), which requires electricity generators and industrial firms to purchase allowances to cover their carbon emissions. The European Commission is expected to present formal proposals for changes to the ETS on 17 July. Against this backdrop, it faces conflicting demands from member state governments as to whether the scheme should be relaxed to support businesses currently facing difficulties.

The European People’s Party (EPP) has emphasised in an internal document the need for changes to ‘protect the competitiveness of industry’. This political group also includes the party of European Commission President Ursula von der Leyen.

In particular, the EPP proposes the following measures:

1. Slowing the rate of emissions reductions. The current system is designed to reduce emissions by at least 4.3 per cent annually, rising to 4.4 per cent from 2028. Instead, the draft’s authors propose reducing the annual reduction rate by at least one percentage point between 2031 and 2035, and reducing it even further after 2035.
2. Extension of free allowances. The group advocates that industrial sectors should receive free emission allowances for a longer period. Currently, the EU allocates a fixed number of such allowances to help local businesses compete with foreign rivals who do not bear similar carbon costs. The document states that this trajectory should be slowed down and phased in over time, with the maximum reduction in free allowances capped at 30 per cent by 2030.

Furthermore, the draft emphasises that if other EU safeguard mechanisms (designed to protect domestic producers from cheaper imports with a high carbon footprint) do not function properly, the process of phasing out free allowances should be halted entirely.

Since 2013, the Emissions Trading System has generated €260 billion ($297 billion) in revenue, most of which has gone to national governments. The EPP believes that Member States should invest a significantly larger share of these funds in the decarbonisation of their own economies, and first and foremost in those sectors that directly bear the costs of carbon emissions.

As reported by the GMK Centre, the Italian association Confindustria has called for a pragmatic review of the European Emissions Trading Scheme (ETS), without calling into question the decarbonisation targets: it is important to rectify certain mechanisms which currently risk undermining the competitiveness of European industry.