EU Plans Carbon Market Overhaul to Boost Industrial Competitiveness

The European Union is reportedly planning significant reforms to its carbon market, aiming to provide more flexibility for industrial companies. The move is a response to concerns from energy-intensive sectors about Europe's declining global competitiveness, with the new measures intended to be unveiled in a European Commission review on July 17.

A key component of the plan is the creation of an "ETS Investment Booster," a carbon-market fund set to launch as early as next year. Based on 400 million allowances and running for three years, the fund will grant permits to eligible companies on a first-come, first-served basis. This initiative is the first phase of a larger Industrial Decarbonization Bank, which aims to provide €100 billion in funding derived from the carbon market.

The overhaul is expected to include a slower emissions-reduction trajectory, which would allow for the issuance of carbon permits beyond 2039, the year the cap is currently set to reach zero. The EU will also extend the allocation of free carbon permits to companies, with a portion of these allowances being conditional on new investments in decarbonization projects and increased domestic production of low-emission products within the bloc.

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Further adjustments include a proposed fast-track revision of carbon benchmarks for the 2026-2030 period, which is projected to result in an additional €6 billion ($6.8 billion) in free allowances for the industry. Additionally, the commission is considering allowing a limited number of international carbon credits, capped at 2%, to be included in the cap-and-trade system starting in 2036.