Portugal has called on Brussels to halt the reduction of free carbon allowances, warning this could damage competitiveness and slow the pace of industrial decarbonisation.
Portugal is pressing the European Commission to reconsider its decision to cut free emissions permits allocated to industry under the EU carbon market, fearing this step will hinder companies’ capacity to invest in decarbonisation efforts, according to a document obtained by Euronews.
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Maria da Graça Carvalho, Portugal’s energy minister, emphasizes that the Commission’s review of free allowances under the Emissions Trading System (ETS) for 2026–2030 arrives amid an especially challenging period for energy-intensive sectors in Europe, which are grappling with soaring energy prices and elevated production costs.
Within the ETS framework, industries must pay for their carbon emissions related to production but receive free allowances to avoid shifting production to countries with less stringent climate regulations.
Given the Commission’s plan to lower these free allocations, Graça Carvalho notes that companies are already burdened by high energy expenses, stiff global competition, and investments necessary for transitioning to greener manufacturing processes.
Portugal proposes temporarily maintaining the previous carbon allowance levels until the comprehensive ETS review, scheduled for 15 July, concludes. The government advocates for this freeze to be implemented sector-wise to guarantee ongoing adequate protection against excessive compliance costs.
«The ETS no longer aligns with present global conditions. Europe is effectively acting unilaterally by imposing swiftly increasing carbon costs on its industries, which already endure structural disadvantages such as higher energy expenses and regulatory burdens. This convergence rapidly undermines competitiveness,» the letter states.
Portugal does not oppose climate policies but suggests a «more gradual and pragmatic» transition that balances environmental goals with economic and technological feasibility. The correspondence highlights the ceramics, glass, and cement sectors, which are particularly susceptible to proposed amendments.
Supporting traditional industries
Particular emphasis is placed on the ceramic sector due to its importance to Portugal’s industrial economy and regional employment. The government notes that many ceramic plants are relatively low in emissions but remain significantly exposed to ETS carbon allowance changes.
While acknowledging investments in efficiency and shifts toward lower-carbon fuels like biomass, Portugal argues that commercially viable alternatives, including renewable gases and hydrogen, are currently insufficiently accessible and often costly for broad industrial use.
«This scenario could substantially increase compliance expenses and diminish operators’ financial ability to fund decarbonisation,» the letter asserts.
The European Ceramic Industry Association (CERAME-UNIE) cautions that if the Commission proceeds with the proposed adjustments, carbon costs could unjustifiably rise by over €500 million in 2026 compared to 2025, accumulating to an additional €2.5 billion over the 2026–30 period.
«In recent years, the sector has seen a sharp downturn across the EU: production has dropped about 30%, trade balance declined over 50%, and employment fell by 10%,» CERAME-UNIE stated.
Discrepancy between regulations and reality
Lisbon argues that reducing carbon allowances risks creating a significant disparity between regulatory obligations and the current technological capacity of industrial activities.
The government warns that increased compliance costs could shrink firms’ ability to finance decarbonisation projects and incentivize relocation of production outside the EU, a process known as carbon leakage.
Portugal also criticizes the Commission for adjusting free allowances immediately before the broader ETS review due mid-July, arguing that it introduces avoidable regulatory uncertainty.
Industrial sectors push back hard on the ETS
Concurrently, a coalition of European heavy industry groups is appealing to EU leaders to stop what they call a «dangerous escalation of carbon costs,» warning that the EU’s flagship carbon market risks becoming a competitiveness threat rather than a catalyst for industrial transformation.
«Europe’s industrial foundation faces severe pressure. Ahead of the planned EU ETS reform, we urge immediate measures to halt the rise of ETS-related expenses to prevent further harm to Europe’s manufacturing sector,» states a letter signed by 33 heavy-industry representatives from chemicals, steel, and metals sectors.
Several member states have also lobbied the Commission to significantly dilute or abolish the EU carbon market.