Proposed changes to free carbon allowances could halve the investment generated by the Commission’s planned conditions for industrial support, the EU executive warned. The clash with lawmakers in Brussels exposed a central dispute in the carbon market overhaul: how much relief companies should receive, and what they should deliver in return.
“We want to stop being in the business of handing out free lunches,” Rosalinde van der Vlies, the Commission’s director for carbon markets and clean mobility, told Parliament’s environment committee. She supported much of rapporteur Peter Liese’s (EPP/DEU) draft report but challenged changes to investment requirements and intervention in carbon prices.
Tight is right. Too tight is broken. — Peter Liese (EPP/DEU), rapporteur of Committee on the Environment, Climate and Food Safety
The debate concerns a revision proposed in July to support industrial competitiveness while delivering the EU’s 2040 climate target. The emissions trading system requires covered companies to surrender allowances equivalent to their emissions. Some manufacturers receive allowances free of charge to reduce the risk of production moving to countries with weaker climate rules.
More breathing space, but on what terms?
Mr Liese’s opening statement, read by fellow European People’s Party MEP Jessica Polfjärd (SWE) in his absence, argued that the carbon market needed to give industry a more realistic path towards cleaner production. “Tight is right. Too tight is broken,” he said in the statement.
He supported linking additional free allowances to investment and protecting jobs. But his draft seeks to adjust the Commission’s approach as businesses struggle with energy costs and international competition. He also urged governments to use carbon-market revenues more effectively to finance clean energy.
The Commission argued that free allowances had always been intended to give companies time to develop and implement cleaner technologies. Ms Van der Vlies said that, after 14 years and €255 billion in free allocation, too little investment had followed. The Commission wanted to continue and expand support, she said, while ensuring it strengthened European production.
Her sharpest objection concerned a proposed exemption from investment conditions covering 40 per cent of installations. That would halve the investment volume compared with the Commission’s proposal, she told MEPs. The figure was the Commission’s assessment of the draft’s impact, rather than an agreed finding of the committee.
Companies that moved first fear losing out
The disagreement also ran within Mr Liese’s own political group. After presenting his statement, Ms Polfjärd explicitly switched to speaking for herself and criticised the draft. Weakening the carbon market, she argued, could disadvantage companies that had already invested heavily in reducing emissions.
“We must reward the frontrunners, not make them regret that they moved first,” she said. Ms Polfjärd also questioned whether the Commission’s proposed Investment Booster would favour new investments over businesses that had already taken the financial risk of building cleaner facilities.
Other groups challenged the reform from opposite directions. Czech conservative Alexandr Vondra rejected investment conditions as another regulatory burden and called for free allowances to remain available for longer. Dutch socialist Mohammed Chahim questioned whether either the Commission’s proposal or Mr Liese’s draft would deliver the emissions reductions needed for the EU’s climate target. “It doesn’t add up,” he said.
We want to stop being in the business of handing out free lunches. — Rosalinde van der Vlies, Commission’s director for carbon markets and clean mobility
Renew Europe’s Emma Wiesner (SWE) argued that weakening emissions trading would prolong exposure to expensive imported fossil fuels. Industry needed certainty and investment, she said, but reducing several elements of the system at once would undermine the incentive to move towards cleaner production.
Carbon prices become another dividing line
The Commission also opposed proposed changes to the mechanism for dealing with excessive carbon-price fluctuations. Ms Van der Vlies warned against trying to “engineer a carbon price through frequent market intervention”, arguing that this would reduce predictability for investors and make emissions reductions more costly.
The committee had already backed keeping a mechanism that removes surplus allowances from the market in September, while proposing a larger reserve buffer to give industry more flexibility.
There was more common ground over directing revenues towards the transition. Mr Liese argued that governments had not used the money efficiently enough. Socialist MEP Annalisa Corrado (ITA) similarly warned that revenues needed to support cleaner production rather than disappear into general national budgets.
Thursday’s discussion did not settle Parliament’s position. The committee is due to vote on 1 December, with amendments closing on 6 October. The negotiations will now test whether lawmakers can give struggling manufacturers more room without weakening incentives to cut emissions. They must also preserve investment certainty for companies already making the transition.
