EU Weighs More Free Emission Permits in ETS Review to Boost Industry Competitiveness

Brussels is considering increasing free permits as part of the ETS review to strengthen the competitiveness of European companies against international competitors.

The EU is preparing to temporarily relax some rules on its emissions market to boost the competitiveness of European industry. According to a draft of the conclusions of the upcoming summit of European leaders and diplomatic sources reported by Reuters, Brussels intends to grant more free emission allowances to energy-intensive companies starting in 2026.

EU Considers Expanding Free Emission Allowances Under ETS Review to Support Industry Competitiveness

The measure is part of the review process of the Emissions Trading System (ETS), Europe’s main instrument for reducing greenhouse gas emissions. The mechanism requires industries in particularly “brown” sectors to purchase CO₂ emission permits, creating an economic incentive to invest in cleaner technologies.

In addition to permits purchased on the market, some companies already receive free allowances to prevent production from being relocated to countries with less stringent environmental regulations. The European Commission is now considering expanding this free allocation, accepting requests from several member states, including Greece, Poland, and the Czech Republic.

The intervention would specifically concern the criteria used to calculate the number of free allowances allocated to companies. The changes would affect the so-called “fall-back benchmarks,” technical parameters that take into account energy consumption and heat production in certain industrial sectors.

According to documents circulated in Brussels, the Commission will present a specific proposal alongside the broader ETS review scheduled for July. The aim is to provide rapid support to certain industrial sectors complaining of increasing competitive pressure from foreign producers subject to lower environmental costs.

Potential beneficiaries include energy-intensive industries such as chemicals, refineries, and other sectors with high carbon emissions.

The proposal, however, could spark criticism among supporters of stricter climate policies . Increasing free allowances would reduce the cost of emissions for the companies involved and could weaken the economic incentives to invest in decarbonization.

The discussion reflects the delicate balance Brussels is trying to maintain between climate objectives and the need to preserve the competitiveness of European industry in an increasingly complex international context. In recent months, several governments have called for greater flexibility in European environmental policies, arguing that the costs of the ecological transition risk penalizing companies compared to competitors in other parts of the world.

The European Commission did not provide further details on the proposal, limiting itself to confirming the existence of a preliminary agreement that provides for the submission of amendments to the allocation of free allowances.

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(Featured image by Jannik via Unsplash)

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