European Commission officials have unveiled a draft amendment to the EU Emissions Trading System that would allow high‑emitting sectors such as steel, chemicals and aviation to keep buying or receiving carbon allowances well into the 2040s, rather than meeting the 2039 zero‑emission deadline set when the scheme was launched.

The change follows a long campaign by member states that rely heavily on fossil fuels, notably Poland, Italy and the Czech Republic, and by industry lobbyists who argue that the current system puts European manufacturers at a disadvantage against rivals in the United States and Asia.

Free permits become a longer‑term fixture

Since the ETS began in 2005, the Commission has occasionally handed out free CO₂ permits to sectors deemed "at risk of carbon leakage", meaning they might relocate production to countries with laxer climate rules. What began as a temporary safeguard has, according to WWF's industrial decarbonisation expert Camille Maury, morphed into a permanent feature of the market.

Under the proposed revision, the pool of free allowances would not only stay larger, but would also be available for a longer period. The Commission intends to tie these freebies to concrete decarbonisation plans, requiring firms to submit detailed roadmaps before they can claim any permits.

Member states would also be obliged to channel at least half of the revenue generated from the sale of paid‑for permits, a sum that has reached €260 billion since 2013, into programmes that support the transition of local industries. The idea is to use the money to fund clean‑technology projects, from renewable‑based fuels to energy‑efficiency upgrades.

What the numbers mean for workers and households

For workers in carbon‑intensive factories, the proposal is a double‑edged sword. On the one hand, keeping permits cheap could preserve jobs in the short term by shielding firms from sudden cost spikes. On the other, it may delay the shift to greener production methods, potentially postponing the creation of new, higher‑skill jobs in emerging sectors such as green hydrogen and biomethane.

Consumers could feel the impact through the price of goods that rely on heavy industry, steel‑reinforced construction, chemicals used in plastics, or aviation tickets. If allowances remain cheap, the cost of carbon is less likely to be passed on to end‑users, but the long‑term price of climate inaction, more extreme weather, higher energy bills and supply‑chain disruptions, would remain unmitigated.

Green molecules as a possible bridge

Experts stress that the ETS alone cannot deliver the deep cuts needed for climate‑neutral industry. Flora Marchioro, a climate and energy policy researcher at the Brussels think‑tank Bruegel, distinguishes between two layers of decarbonisation: changing the energy source that powers a furnace, and altering the chemical recipe of the product itself.

In the first layer, "green molecules", non‑fossil chemicals and renewable fuels produced with clean electricity or biomass, could reduce Europe's reliance on imported oil and gas. Biomethane, for instance, can be injected into existing natural‑gas pipelines, offering a low‑cost pathway for some sectors. However, production remains modest and would need substantial scaling to make a dent in overall demand.

Hydrogen, especially when generated from renewable electricity, is hailed as the most promising option for processes that cannot be electrified directly, such as steelmaking or ammonia synthesis. Petteri Laaksonen, research director at LUT School of Energy Systems, warns that switching to hydrogen demands "new interlinked investments" across the entire value chain, from electrolyzers to storage and transport infrastructure.

Market volatility can either accelerate or stall such investments. The recent spike in fossil‑fuel prices triggered by geopolitical tensions in the Middle East sparked a surge of interest in green hydrogen, but the enthusiasm faded once prices stabilised. BloombergNEF analyst Martin Tengler notes that a typical hydrogen project has a 10‑ to 20‑year lifespan, making long‑term policy certainty essential for investors.

Opposition from green pioneers

Countries that have already made significant strides in clean energy, such as Sweden and Spain, argue that diluting the ETS rewards firms that have already invested in low‑carbon technologies while penalising early adopters. They contend that a weaker price signal undermines the business case for further innovation.

"That is exactly the signal that discourages investors from sending money in the direction of innovation," says Camille Maury. "Even though clean alternatives already exist, companies are hesitant to make the switch due to changing rules."

Trade unions across the continent share the concern that a lenient carbon price could lock in high‑emission assets, making it harder for workers to transition to greener occupations. The European Trade Union Confederation has called for a "robust and predictable carbon price" that would protect both the climate and jobs.

Strategic implications for European industry

If Europe fails to secure a pipeline of decarbonisation projects, analysts warn that Chinese firms could dominate the market for fossil‑free products. Petteri Laaksonen points out that China is already investing heavily in green hydrogen and synthetic fuels, aiming to export them globally.

"We risk swapping our energy dependency from the Middle East and the US to a new dependency on China," he adds. "Maintaining a European industrial base that can produce low‑carbon goods is essential for both climate goals and strategic autonomy."

The Commission's proposal tries to balance these competing pressures by keeping the ETS functional as a revenue source while softening its impact on vulnerable sectors. Whether the compromise will satisfy climate advocates, industry, or member states remains to be seen.

Parliamentary committees are slated to debate the draft in the coming months. If adopted, the revised rules could reshape the EU's carbon market for the next decade, influencing everything from the price of a bus in Budapest to the cost of flood‑risk protection in Tallinn.