Brussels is tightening the rules around carbon costs, targeting loopholes that can give foreign producers an unfair advantage over European firms. Four Parliament votes aim to shield both industry and households from sharper price swings while keeping pressure to cut emissions.
European lawmakers have backed four proposals to change the EU carbon market. Two votes concerned competition from outside Europe: expansion of the Carbon Border Adjustment Mechanism (CBAM) and a new Temporary Decarbonisation Fund. The first would place a carbon charge on more imported products, while the second would help European manufacturers invest in cleaner production and compete abroad.
The remaining changes affect the reserves used to stabilise the EU’s two emissions-trading systems. They seek to make carbon prices more predictable for industry and limit sharp increases when emissions trading expands to buildings and road transport.
A vote against CBAM is a vote against European industry and European workers. — Mohammed Chahim (S&D/NLD)
All four proposals were prepared by Parliament’s Environment Committee. Their common aim is to protect European companies from unfair competition while maintaining incentives to reduce emissions.
Carbon charge expands beyond raw materials
Parliament approved extending CBAM beyond basic materials such as steel and aluminium to selected products made from them. The expanded mechanism would cover downstream goods including fasteners, wire, springs and some household articles.
“A vote against CBAM is a vote against European industry and European workers,” Mohammed Chahim (S&D/NLD), Parliament’s lead negotiator on the mechanism, told lawmakers before the vote.
Stronger anti-circumvention rules would target companies attempting to avoid the charge by slightly modifying products, rerouting trade or shifting emissions between production sites. CBAM requires importers to pay a carbon price reflecting the emissions generated when their goods were produced outside the EU.
We need to protect our exporters against unfair competition on export markets. — Pascal Canfin (Renew/FRA)
The extension is intended to prevent European manufacturers from losing customers to imported finished goods made with cheaper, carbon-intensive materials. Without it, a foreign producer could avoid much of the charge by turning steel or aluminium into another product before exporting it to Europe.
New fund supports cleaner European exports
A second vote established Parliament’s position on a Temporary Decarbonisation Fund. It would help European manufacturers invest in cleaner production and compete in export markets where foreign rivals do not face equivalent carbon costs.
“We need to protect our exporters against unfair competition on export markets,” MEP Pascal Canfin (Renew/FRA) said during the debate.
Under Parliament’s position, the fund would receive the equivalent of 25 per cent of revenue generated by CBAM certificates. Support would run from 2027 to 2029 and cover producers facing a high risk of relocating production, including parts of the fertiliser and downstream manufacturing industries.
EU ETS Market Stability Reserve divides Parliament
Lawmakers approved changes to the Market Stability Reserve for the main EU Emissions Trading System. The reserve controls the supply of pollution allowances to prevent surpluses or shortages from destabilising prices.
The measure passed with 367 votes in favour, 240 against and 59 abstentions. “It is almost like a central bank of emission quotas,” Italian lawmaker Pierfrancesco Maran said. “A carbon market that is unpredictable drives industry away without reducing a single tonne of CO₂.”
A carbon market that is unpredictable drives industry away without reducing a single tonne of CO₂. — Pierfrancesco Maran (S&D/ITA)
Under current rules, allowances held in the reserve above 400 million are permanently invalidated. The Commission proposed ending that mechanism, but Parliament backed a compromise that would instead raise the threshold to 650 million from March 2027.
As EU Perspectives previously reported, supporters say the compromise gives manufacturers greater predictability while maintaining pressure to reduce emissions. However, the large opposing vote reflects continuing disagreement over whether the change weakens the carbon market.
ETS2 receives a price safeguard
The fourth vote concerned the separate reserve for ETS2. The new system will price emissions from fuels used in buildings, road transport and several additional sectors. Lead negotiator Danuše Nerudová (EPP/CZE) said the safeguard was needed because households were already facing high energy prices.
Parliament approved releasing more allowances when prices rise too quickly. The safeguard is intended to limit the effect of ETS2 on household heating and transport costs.
Most of the EU carbon market reforms are not yet law. The CBAM, decarbonisation-fund and main-reserve texts must now be negotiated with EU governments. The ETS2 changes already have a provisional agreement between the institutions but still require final Council approval.
