The largest political group in the EU aims to alleviate the carbon market's impact on industry.

The largest political group in the European Parliament aims to alleviate pressure on companies by delaying planned emissions reductions and extending free pollution permits, as indicated in a draft position paper reviewed by Reuters.

The European Union is set to revamp its Emissions Trading System (ETS), which mandates that power producers and industrial firms purchase permits to account for their carbon emissions.

The European Commission is scheduled to announce revisions to the ETS on July 17, amid differing opinions from governments on whether to relax the framework to support struggling industries. The European People's Party (EPP), the largest legislative group within the European Parliament, which will collaborate with EU member states to finalize the ETS regulations, stated in a draft internal document that "adjustments are needed to protect industrial competitiveness."

The EPP, which includes the political party of European Commission President Ursula von der Leyen, seeks to reduce the pace of emissions cuts under the ETS starting in 2030. Currently, the system aims for a minimum annual emissions reduction of 4.3%, increasing to 4.4% in 2028. The proposed amendments suggest a reduction rate that should be at least one percentage point lower from 2031 to 2035, and even lower thereafter, according to the draft paper.

Additionally, the group advocates for an extension of free carbon permits for industries, as outlined in the unpublished draft, which may still undergo revisions. The EU presently allocates a fixed number of free permits to industries to help them remain competitive against foreign rivals that do not incur similar carbon costs.

The draft states, "The trajectory should be slowed down and pushed further back in time with a maximum phase-out of 30% before 2030." It further notes that if other EU initiatives aimed at protecting domestic producers from cheaper, carbon-heavy imports do not function effectively, the phase-out of free permits should be suspended.

Since its inception in 2013, the ETS has generated €260 billion ($297 billion) in revenue, with the majority allocated to national governments. The draft recommends that governments invest a larger portion of these funds in decarbonizing their economies, particularly in sectors facing carbon costs.

An EPP spokesperson declined to comment on the contents of the draft document.