Jakarta, INTI - The European Union’s leading business lobby group has called on the bloc to maintain free carbon permits for industries, increasing pressure on policymakers as they prepare a significant reform of the EU carbon market.
Brussels is currently restructuring the EU’s Emissions Trading System (ETS), its primary climate policy instrument, which requires power plants and factories to purchase CO₂ permits corresponding to their emissions.
The ETS has faced mounting political scrutiny amid concerns over Europe’s declining competitiveness, with several governments advocating for a reduction in carbon prices or even a temporary suspension of the system.
A key issue in the forthcoming review is whether to revise the framework governing free CO₂ allowances, which help mitigate compliance costs for industries. These free permits are scheduled to be fully phased out by 2034.
"The Commission should reconsider the planned phase-out of free allowances for all sectors," industry association BusinessEurope said in a position paper published on Tuesday.
Instead, the EU should look at expanding the list of sectors eligible for free permits, it said.
BusinessEurope, whose members include national industry associations such as BDI and Lewiatan, also urged the EU not to make free permits conditional on companies investing in energy savings.
ETS Reform, Carbon Tariffs, and WTO Concerns
The request intensified pressure on the European Commission, which structured the ETS reform to eliminate free permits as part of the introduction of a carbon border tariff on imported goods. Brussels has previously argued that maintaining both mechanisms would result in double compensation for domestic industries, potentially violating World Trade Organization rules.
According to an internal Commission document earlier reported by Reuters, officials are considering several options to reform the free allowance system, including linking them to industrial decarbonisation commitments.
The Commission is expected to present its proposal for revising the ETS in the third quarter of the year.
Conclusion
The debate over free carbon permits highlights the delicate balance between climate ambition and industrial competitiveness within the European Union. As policymakers weigh the future of the ETS, they must reconcile decarbonisation goals with economic realities.
The outcome of the upcoming reform will shape not only Europe’s carbon market but also its broader industrial strategy in an increasingly competitive global landscape.
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