The European Union's carbon market emerged as one of the most contested topics at a summit of EU leaders in Brussels on Thursday and Friday – just days after high-level political talks between EU environment ministers revealed deep splits on the issue.
In lengthy debates that dragged late into the night on Thursday, the leaders of the three Nordic members faced off against the four-nation Visegrad group – Hungary, Slovakia, the Czech Republic and Poland –over the future of the bloc's Emissions Trading System (ETS).
Italy and Greece also backed the Visegrad four as the bloc's carbon market has emerged as a core friction point, with several capitals linking the immediate energy price crisis to the bloc's carbon costs.
The ETS makes companies pay for their pollution, with the dual aim of reducing emissions and encouraging industry to invest in more sustainable alternatives. Since its onset in 2005, emissions covering affected industries have dropped by 51%, according to the European Commission.
In Europe, the ETS currently covers heavy industries, power plants, as well as airlines and shipping. Additional sectors such as international aviation, landfills and incinerators are set to be included in the summer review tabled by the Commission.
Finland, Denmark and Sweden warned EU leaders on Thursday that watering down the ETS would undermine investment in clean technologies and those who have already invested.
"Any weakening of the ETS would undermine the predictability on which investment decisions depend and risk slowing the pace of industrial decarbonisation," reads a letter penned by the three EU countries and seen by Euronews.
But Czech Prime Minister Andrej Babis sharply attacked the ETS and carbon taxes, blaming carbon market speculators for destroying Europe's competitiveness.
“Someone is making billions at the expense of the European industry, which is in decline and which of course has major problems,” Babis told reporters on Thursday.
Babis said EU climate policies are "ideological stuff" that ignore economic realities. He added that carbon allowance prices skyrocketed far past original forecasts, arguing that the system rewards financial gamblers while punishing traditional manufacturing and regular citizens.
Babis and his Italian counterpart Giorgia Meloni recently urged Brussels to provide immediate economic oxygen to struggling European factories.
EU countries are using the current geopolitical shock as leverage to recalibrate carbon market rules, depending on their national energy mixes. Fossil-heavy nations are pushing for lower carbon price pressures, while green-forward nations demand steadfast transition timelines.
The Nordics argue that cutting ambition would also "shift the burden of emission reductions to other sectors of the economy" where mitigation options are often more difficult and politically difficult.
"This is not a new issue, but the current situation gives renewed urgency to the debate. Leaders shared their expectations in the context of ongoing legislative negotiations," one EU diplomat said.
ETS encourages decarbonisation
The countries backing the ETS see it as an enabler of decarbonisation, both because of its raised revenues and because it encourages heavy-industry sectors to invest in green technologies to avoid higher carbon costs.
"(The ETS) has played an important role in decarbonisation. We must now maintain the price signal and ensure the scheme continues to function by implementing corrective measures," a second EU diplomat told Euronews.
"We must preserve the structural mechanisms whilst providing short-term flexibility for the member states most affected," the diplomat added.
EU leaders invited the Commission to examine further short-term interventions and urged EU lawmakers to accelerate work on the Market Stability Reserve, the mechanism governing the supply of allowances in the ETS with the aim of limiting carbon-market price volatility — and ultimately carbon pricing.
Battle for ETS2
However, a plan by the four Visegrad countries — backed by Italy and Greece — to delay the new version of the Emissions Trading System (ETS2) until 2030 has hit a wall late on Thursday.
The four countries argued that households and small businesses will inevitably face higher costs. They said that "price differences between the EU regions and EU countries are enormous", particularly in Eastern Europe.
The ETS2 is the new carbon market set to cover fuels used in road transport and buildings as of 2029.
The climate tool was already delayed once over concerns about its social impact on the most vulnerable, as the mechanism will inevitably increase energy bills further, despite the bloc's attempts to regulate price spikes.
Despite the concerns raised by the six countries, one EU diplomat told Euronews that the proposed amendments "would never get the required unanimity".
"There is little support for it and they know it. That's why they try it at the European Council instead of the Environment Council because there's no majority there for this," another EU diplomat said.
Nonetheless, the six countries succeeded in requesting an impact assessment to determine its design and safeguards, which the Commission will handle, according to the Council conclusions.