EU proposes slower carbon market cap cuts and longer free permits for industry to ease competitiveness pressure

The European Commission has proposed significant changes to the EU Emissions Trading System (ETS), including a slower annual reduction rate for the emissions cap and an extension of free CO2 permits for heavy industries like steel and cement until 2038. The plan aims to balance climate goals with industrial competitiveness, responding to pressure from member states such as Italy and Poland. Free permits will be conditional on companies investing in decarbonization in Europe, with 80% issued upfront and 20% after investments are made. The proposal also delays the full phase-in of the EU's carbon border adjustment mechanism to 2038 and expands the ETS to cover waste incineration, smaller ships, and more international flights. The ETS has generated 260 billion euros since 2013, and the Commission wants stricter rules requiring governments to reinvest 50% of that revenue into decarbonizing covered sectors. EU countries and lawmakers will negotiate the final revision over the next year, amid political pushback against climate policies. This revision directly impacts carbon prices, industrial investment decisions, and the pace of emissions reductions in Europe. For anyone tracking carbon markets or climate policy, this is a concrete signal of how the EU is adjusting its flagship policy to address real-world economic pressures while still aiming for a 90% net emissions cut by 2040.