Brussels is preparing to introduce an emergency brake on its flagship emissions trading system (ETS) as the Iran war pushes energy prices higher and strains heavy‑industry budgets. The Commission will announce the measure next week, aiming to cap carbon price spikes by keeping surplus credits in the market that would otherwise be cancelled.

Under the current ETS, companies must buy permits to cover emissions, while free allowances are phased out as firms improve efficiency. The proposed brake would prevent credits held in a reserve from being invalidated, rather than creating new ones, and would target sectors such as power generation and other energy‑intensive industries.

The reform faces a split in Brussels. Austria, Italy, Poland and the Czech Republic argue the ETS adds to industrial costs, while Spain and other fast‑decarbonisers resist radical cuts. Ursula von der Leyen said the system is working but needs more flexibility, pledging to adjust free‑allocation benchmarks and strengthen the Market Stability Reserve.

Carbon prices have already slipped as traders anticipate a watered‑down ETS, yet the emergency brake will not lower energy costs in the short term. Clean‑energy advocates warn that lower carbon prices could dampen investment in green technology, while separate price controls for road transport and buildings are slated for later this year.