The European Union plans to safeguard its industrial base from rising carbon costs by extending free emissions allowances well into the 2040s. In exchange, firms must funnel much-needed investments into European production. The move, outlined in an internal draft, shifts the EU’s cap‑and‑trade system away from a 2039 cap toward a longer‑term framework.

The ETS has already raised more than €43 bn in 2025, most of which returns to member states. Yet soaring energy prices have sparked criticism from sectors such as chemicals, steel and heating. Under the review, the free‑allocation regime will persist but tie allowances to new industrial investment.

To appease hard‑to‑abate sectors, the Commission is eyeing a $30 bn investment‑booster of allowances before 2030. Meanwhile, steelmaker SSAB pledged €6 bn to decarbonise its Swedish plants and considered a new mill in Finland. These moves aim to preserve competitive edge while meeting the 90 % 1990‑level target by 2040.

If the Commission delivers the review by mid‑July, firms will confront a transparent link between climate policy and capital allocation. The shift could compel heavy‑industry players to redirect budgets toward low‑carbon technologies, altering supply chains and potentially increasing European manufacturing costs in the near term. The move may also trigger a review of national subsidy schemes and force governments to balance environmental goals with competitiveness.