Ten EU countries make last-minute push for industry reprieve in ETS overhaul

A coalition of 10 EU countries has presented a joint statement to the European Commission outlining demands for a slower reduction in carbon allowances, extended free allocations, and a reconsideration of ETS2, the EU's new carbon market for road transport, buildings and small businesses, Poland's deputy climate and environment minister Krzysztof Bolesta said July 15.

The statement was signed by Poland, Bulgaria, Cyprus, Czechia, Estonia, Greece, Hungary, Italy, Romania and Slovakia. If adopted, the proposals would fundamentally reshape the trajectory of Europe's flagship climate policy.

The intervention comes as the commission prepares to unveil its comprehensive emission trading system review on July 17, a package expected to recalibrate the market stability reserve, extend free allocations with investment conditions, and inject 400 million allowances into the market through an investment booster running from 2028-2031.

The coalition's central demand is to flatten the pace at which the EU allowance cap shrinks. The joint statement argues the current system, which requires energy and industry sectors to reach near-zero emissions by 2039, "will push industries out of Europe." Poland wants the annual linear reduction factor to fall to just over 2% from the current 4.4%, ensuring allowances aren't exhausted until closer to 2050.

"We're saying that industry won't sustain this pace of transformation and that we need more time, that sectors burdened by the ETS must have more freedom to transform," Bolesta said. "Such a rate will also allow the system to better adapt to our realities ... If the rate of ETS shrinkage is slower than CO2 reductions in Poland, our industry will be able to have a breather."

He argued that Poland's emissions fell about 3% last year, suggesting a slower cap reduction would give industry breathing room.

Political pressure

The joint statement calls for making the carbon price "predictable and immune to speculation," as well as "affordable to maintain EU competitiveness globally."

The Polish-led intervention highlights divisions within Europe over how to balance climate ambition with industrial competitiveness as the bloc pursues a 90% reduction in emissions by 2040.

Coralie Laurencin, director of European gas, power, and carbon policy at S&P Global Energy CERA, said the review reflects a fundamental shift in how Europe's carbon market is evaluated.

"The review reflects a new reality: Europe's carbon market is no longer judged solely on emissions reductions, but also on how it impacts industry," Laurencin said. "Europe is divided on how far to go, yet it is difficult to see a scenario in which the EU does not continue to have one of the world's highest carbon prices."

The review has drawn intense scrutiny, and EU allowances have been volatile so far in 2026, having declined nearly Eur30/metric ton of CO2 equivalent in March to highs of near Eur93/mtCO2e in January, according to data from Platts, part of S&P Global Energy.

Platts assessed EUAs for December 2026 at Eur81.41/mtCO2e on July 14.

Benchmark revision

The joint statement also calls for a fast-track revision to address fallback benchmarks for the 2026 allocation period, while a broader review should "comprehensively review the product benchmark methodology to better reflect technological and industrial realities."

Free allocations are based on benchmarks derived from the average emissions of the 10% most efficient installations for each product category. Higher fuel benchmarks would allow industrial sectors to receive more free emission permits retroactively for 2026 and beyond.

Other demands include extending the Modernization Fund beyond 2030 with guaranteed pools for less affluent countries.

"We want to extend the fund and increase its pool, and when it comes to the Investment Booster, it is an instrument that will allow for co-financing of industrial decarbonization," Bolesta said. "We are working to ensure there is a guaranteed pool for less affluent countries, so that their projects do not compete for funding with projects from Sweden or Denmark, for example."

ETS2 reconsideration

The coalition's demands include reconsidering ETS2, which would essentially extend carbon pricing to road transport, buildings and small businesses not covered by the existing ETS, directly impacting households through higher fuel and heating costs.

"European citizens should not be facing new climate taxes in current economic and geopolitical circumstances," the statement said.

Bolesta said Poland's preference would be to make participation voluntary for member states. "This is one of our most important demands in this reform," he said. "Ideally, we would prefer there not to be an ETS2, but if there is, it should be voluntary."

The launch of the EU ETS2 was delayed from 2027 to 2028 to provide additional time for affected sectors and member states. The postponement also occurred amid lingering concerns that ETS2 could lead to substantial increases in energy prices, highlighting the complex interplay between ambitious climate objectives and economic realities.

The EU ETS2 targets a 42% reduction in emissions from 2005 levels by 2030, and the supply of allowances is expected to tighten in the year or two after launch.