Overview
The European Union is reviewing possible revisions to the mechanism that provides free carbon dioxide permits to certain industries as part of a comprehensive redesign of its Emissions Trading System (ETS), according to an internal document. The ETS is the bloc’s principal climate policy and requires power plants and industrial firms to purchase CO2 permits when they emit greenhouse gases.
Three reform options under consideration
The internal presentation sets out three distinct options for changing how free permits are handled:
- Full elimination with phased buy-in: Under the first option, free CO2 permits would be removed entirely. Instead, industries would be required to buy and surrender permits covering a portion of their emissions, with that covered portion increasing gradually until 2034.
- Conditional free permits: A second approach would allow free permits to remain but only on condition that recipient industries make investments in low-carbon technologies.
- Maintain current system: The third path would largely preserve the present free permit arrangement with minimal changes.
Rationale and context
The document notes that the current free-permit mechanism reduces pollution-related costs for industrial emitters and is intended to help them compete with foreign companies that do not face emissions payments. The proposed changes would adjust how those competitive protections are delivered, through either removal, conditionality linked to investment, or continuation of the status quo.
What this means going forward
The options outlined in the internal presentation map a range of potential policy directions for the ETS. Any movement toward elimination or conditional allocation would alter the cost exposure of covered industries and could change investment signals for low-carbon technologies. The timeline mentioned for the phased increase in permit purchase obligations extends to 2034.