The Council of the European Union and the European Parliament have reached a provisional agreement to increase the free CO2 emission allowances for industries with the highest energy consumption, such as chemicals, paper mills, or glass producers. The goal is to ease their costs and prevent them from relocating their production to countries with less strict environmental standards.
The commitment, sealed this Thursday, provides for a reserve of around 121 million free emission entitlements for the 2026-2030 period. This measure comes after the review of the European allocation criteria reduced the allocations planned for certain companies, which prompted criticism from both the affected companies and several member states.
These entitlements are included in the European emissions trading system (ETS, for its English acronym), which requires companies to have a permit for each ton of CO2 emitted. Part of these allowances is granted at no cost to soften the economic impact compared with competitors based in countries with less demanding climate rules.
The specific allocation for each installation is calculated based on different parameters, including the consumption of heat and fuel needed for its activity. The benchmark values linked to these factors were revised last June, which resulted in a reduction of the free allocations planned for the coming years.
To correct this situation, the European Commission presented in July a proposal to adjust the allocation, which the Council and the Eurochamber have now decided to extend with another 28 million allowances that had remained undistributed because certain installations did not meet requirements such as carrying out energy efficiency audits or having climate neutrality plans.
These new allowances will be added to the approximately 88 million already included in Brussels’ initial proposal, while another five million will be reserved for the sectors most vulnerable to the risk of relocation, a phenomenon known as “carbon leakage,” which occurs when companies shift their production outside the Community territory to avoid the costs associated with European emissions regulations.
If these last permits do not end up being used, they will be allocated to finance projects through the European funds for Modernisation and Innovation, aimed at supporting investments and new technologies in the sectors subject to the system.
The reform focuses on free allocations calculated based on heat and fuel consumption, a method applied in industrial processes without specific reference by product and which represents close to a quarter of all rights granted free of charge under the ETS.
The agreement still must receive formal approval from the Council and the European Parliament before its final adoption. Subsequently, the Commission will set the technical rules to determine the allocations that will correspond to each affected installation.