EU Countries Back Extra 121 Million Free CO2 Permits for Industry

EU member states have backed a European Commission proposal to give heavy industries an additional 121 million free CO2 permits over 2026-2030, based on their heat production and fuel use, exceeding the volume the Commission had originally proposed. Reuters calculations suggest the additional permits could save affected companies approximately €8.25 billion in carbon costs, with beneficiaries including chemical producers, metals processing companies, and ceramics and glass makers.

Under the EU's Emissions Trading System, heavy industries must buy permits to emit CO2, providing an incentive to reduce emissions, but a pool of free permits also exists to help companies compete with foreign rivals that do not pay comparable carbon costs. The additional permits are being allocated through a specific technical mechanism known as "fall-back benchmarks," used when a sector-specific product benchmark isn't directly applicable to a given installation's production process, instead calculating free allocation based on more generic factors like heat production and fuel use.

 

The release notes this plan will "temporarily add extra permits to this free allocation despite the ETS being designed to reduce free permits gradually to ensure emissions decrease over time," highlighting a direct tension between this industrial competitiveness measure and the system's core emissions-reduction mechanism, which depends on progressively shrinking the total permit pool to push industries toward emissions reduction over time.

 

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EU countries will negotiate the final rules with the European Parliament, with those negotiations being fast-tracked to reach a deal this year. That accelerated timeline stands in contrast to the EU's separate, broader reform of the ETS overall, which is aiming for a deal only in 2027, suggesting policymakers identified this specific industrial cost concern as requiring more urgent resolution than the wider reform process allows.

 

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The named beneficiary sectors, chemical producers, metals processing and ceramics and glass makers, are all industries producing commodity-like materials that compete directly in international markets against producers in countries without comparable carbon pricing, making them particularly exposed to the competitiveness concerns the ETS's free allocation system was designed to address.