EU reforms carbon market as climate ambitions face pressure from industry and energy costs

The European Union is set to unveil reforms to its Emissions Trading System (ETS), the two-decade-old carbon market, amid intense debate over the bloc's climate goals. The overhaul comes as high energy prices, partly driven by the US-Iran war, and record heatwaves create conflicting pressures. Some EU countries and industries want more flexibility, while others push to maintain ambitious emissions targets. The reform has become a political flashpoint, pitting carbon-intensive economies like Italy, Poland, and the Czech Republic against defenders of the system such as Spain and the Scandinavian nations. The European Commission under Ursula von der Leyen has shifted to a more pro-business stance since her second mandate began in 2024, rolling back some environmental rules. Separately, the EU will also present a target to boost clean electricity from renewables by 2040, though electricity currently makes up only 23 percent of final energy consumption in the bloc. Key questions remain about how much flexibility companies will get and whether the reforms will weaken the ETS's core function of putting a price on carbon. The outcome will signal the EU's real commitment to its climate goals amid competing economic and geopolitical pressures.