EU reforms carbon market to support industry

The European Union has unveiled proposed reforms to its flagship Emissions Trading System (ETS), seeking to alleviate pressure on industries grappling with economic challenges. The overhaul of the two-decade-old system aims to balance the bloc's climate ambitions with the need to support industrial competitiveness.

Under the proposed changes, companies will be allowed to hold onto free carbon allowances for a longer period, extending the deadline from 2034 to 2038, provided they commit to decarbonization investments. Additionally, starting in 2036, manufacturers will gain the option to use international carbon credits, generated by financing decarbonization projects outside the EU, to meet their emissions reduction targets.

EU climate commissioner Wopke Hoekstra described the approach as "more business-friendly and, may I say so, savvy," while reaffirming the bloc's commitment to its overall climate goals. The reforms come after intense negotiations between member states, industry representatives, and environmental activists, with countries like Italy and Poland advocating for a less stringent approach.

The adjustments reflect a broader shift towards a more pro-business stance in the EU, particularly since the start of Ursula von der Leyen's second term as Commission chief in 2024. This pivot is influenced by global economic factors, including the spike in energy prices resulting from the U.S.-Iran conflict and record heatwaves in Europe. Despite these concessions, the EU also announced an ambitious target to double the share of clean electricity from renewable sources to 46% of final energy consumption by 2040, signaling a continued, albeit adjusted, focus on climate action.

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We are adopting a more business-friendly and, may I say so, savvy approach.