Bulgaria, the Czech Republic, Greece, Poland, Romania and Slovakia are pressing Brussels to freeze free carbon permits for heavy industry, exposing a growing split inside the EU over climate policy, competitiveness and the cost of energy.
Six European Union member states are resisting a Commission plan to reduce free carbon permits for industrial companies, arguing that high energy costs and geopolitical instability risk forcing energy-intensive production out of Europe.
Bulgaria, the Czech Republic, Greece, Poland, Romania and Slovakia have asked Brussels to freeze the number of free CO2 permits at last year’s levels, according to a document seen by Reuters. Their intervention comes as the Commission prepares further changes to the EU’s carbon market and as industry ministers discuss how to reconcile climate targets with industrial competitiveness.
The dispute goes to the centre of the EU’s economic strategy. The Emissions Trading System, or ETS, is the bloc’s main mechanism for putting a price on carbon emissions. It requires companies in covered sectors to hold permits for the greenhouse gases they emit, while the number of available allowances is gradually reduced to force decarbonisation. The European Commission describes the ETS as a core tool for cutting emissions in power generation, industry, aviation and maritime transport.
For years, Brussels has given some free allowances to industries exposed to international competition, in order to reduce the risk of “carbon leakage” — the relocation of production to countries with weaker climate rules. The Commission’s broader policy direction has been to phase down these free permits as other mechanisms, including the Carbon Border Adjustment Mechanism, begin to apply. The six governments now argue that current economic conditions make that approach too risky.
Their position reflects the concern of member states with large energy-intensive industries and lower income levels than much of northern and western Europe. Steel, cement, chemicals, fertilisers, glass and other heavy industrial sectors face high energy costs, capital-intensive decarbonisation requirements and competition from producers outside the EU that may not face comparable carbon costs.
The Commission has already proposed easing part of the pressure. Earlier this month it put forward changes that would give industries more free emissions permits over the next few years, potentially lowering carbon costs by around €4 billion by the end of the decade, according to Reuters. The six governments, however, say that is not enough. They want Brussels to keep free permit allocation at 2025 levels rather than continue the planned reduction.
The political timing is sensitive. The EU is trying to maintain credibility on climate policy while also responding to an energy shock linked to the Middle East conflict and to wider concerns over industrial decline. High energy prices have already become a central argument for governments seeking more flexibility in EU climate rules. In March, a larger group of member states also pressed Brussels to keep giving industry free carbon permits, citing the pressure created by rising energy costs.
The opposing argument is that weakening the carbon market would delay industrial transformation and undermine Europe’s climate framework. Countries such as Spain and Sweden have supported maintaining stricter emissions rules, arguing that the EU should not dilute the price signal that encourages companies to invest in cleaner technology. Their concern is that too many free permits would reduce incentives to cut emissions and transfer costs from polluters to the wider economy.
This is therefore not a technical dispute over allocation formulas. It is a test of whether the EU can run an ambitious climate policy while keeping politically exposed industries inside Europe. The six resisting states are effectively warning that climate policy will lose support if it is seen as accelerating factory closures or making European industry less competitive during a period of high energy prices.
The industrial-policy dimension is becoming more important. Brussels has repeatedly said it wants Europe to retain manufacturing capacity in strategic sectors, including clean technology, chemicals, metals and advanced materials. Yet these are often the same sectors most exposed to carbon costs, electricity prices and international competition. If European companies cannot finance decarbonisation while remaining commercially viable, the EU risks losing industrial capacity even as it tightens climate rules.
The debate also has a distributional element inside the single market. Wealthier member states may have more fiscal room to support companies through the transition. Lower-income member states and those with more carbon-intensive industrial structures argue that a uniform carbon price can impose uneven economic costs. That does not remove the need for decarbonisation, but it makes the politics of the ETS more difficult.
The Commission is expected to finalise rules on free permits by the end of June, with broader ETS-related proposals due later as part of the EU’s work on its 2040 climate target. Any change to the system will have to balance several competing objectives: maintaining the credibility of the carbon market, preventing industrial relocation, limiting energy-cost pressure and avoiding a split between member states with different industrial profiles.
For companies, the immediate issue is predictability. Industrial investment decisions require long time horizons, particularly in sectors where decarbonisation depends on electrification, hydrogen, carbon capture or major plant upgrades. A prolonged dispute over permit allocation makes planning harder and may delay investment.
For governments, the issue is political. Carbon pricing has become easier to defend when energy prices are stable and industrial output is secure. It becomes harder when households, companies and workers associate climate policy with higher costs and reduced competitiveness. That is the pressure now confronting Brussels.
The six-state intervention shows that Europe’s climate policy is entering a more contested phase. The question is no longer only whether the EU can set ambitious emissions targets. It is whether it can maintain those targets while preventing the loss of industrial capacity in regions where the economic and political costs are most visible.
