The European Commission has proposed slowing the rate at which the cap on carbon pollution permits is lowered under the EU’s Emissions Trading System (ETS), and extending free permits for industry until 2038, a four-year delay from the previously planned 2034 phase-out.
The proposal, reported by BBC News, marks the first time the EU has softened its carbon-reduction stance since the ETS was introduced in 2005, and has drawn sharp reactions from both industry and environmental groups.
What Changes
The ETS works by setting a yearly cap on the total number of carbon permits available to industry and power plants, forcing emissions down as the cap tightens. Under the current system, the cap is reduced by 4.3% per year. The Commission proposes reducing that to approximately 3.7% per year from 2031, and further to about 1.7% from 2036.
For industry, the most significant change is the extension of free permits. Currently, many industrial sectors receive a portion of their permits at no cost to help them compete with foreign companies that do not pay carbon costs. Those free permits were scheduled to be phased out by 2034, replaced in part by a carbon border adjustment charge on imports. The Commission now proposes keeping free permits until 2038.
Under the reformed system, 80% of free permits would be given up front to companies that commit to investing in decarbonization within Europe. The remaining 20% would be released only after those investments are made.
The Rationale
“We are adopting a more business-friendly and, may I say so, savvy approach,” said EU Climate Commissioner Wopke Hoekstra.
The proposal is designed to align the ETS with the EU’s broader target of reducing carbon emissions by 90% by 2040 compared with 1990 levels, a goal that remains unchanged. The Commission argues that a gentler trajectory will keep European industry competitive while still driving the long-term transition, particularly as the United States rolls back climate regulations and Chinese industry faces no equivalent carbon cost.
The Reactions
Polish Climate Minister Paulina Hennig-Kloska welcomed the softening but said Poland would push for further weakening. “For the first time, we are seeing a softening of the stance rather than a toughening of it, this is a huge success for Poland. Although we will fight for more.”
German Green MEP Michael Bloss condemned the proposal as “gigantic climate pollution,” warning that slowing the pace of emissions reductions would leave the next generation with a worse quality of life. Italy has previously criticized the ETS as a de facto tax that keeps energy prices artificially high.
The proposals must still be approved by EU member states and the European Parliament, a process that could take up to a year.
The Broader Context
The ETS is the EU’s primary tool for reducing greenhouse gas emissions, covering roughly 40% of the bloc’s total output. Since its launch in 2005, the cap has driven a steady decline in industrial emissions, though critics have long argued that the free allocation of permits blunts the incentive to innovate.
The proposed slowdown comes as Europe faces a complex set of pressures: high energy prices driven by the aftermath of the Russia-Ukraine war, the need to maintain industrial competitiveness against the U.S. and China, and a legally binding commitment to reach net-zero emissions by 2050. The question the proposal answers or evades, depending on one’s view, is whether the pace of decarbonization can be calibrated without breaking political consensus.
Sources
1. “EU proposes slowing down cuts to carbon emissions for businesses,” BBC News, July 18, 2026. https://www.bbc.co.uk/news/articles/ckgv0zd497zo