High energy prices are set to top the agenda at a EU leaders summit taking place in Brussels on Thursday (19 March).
Gas and especially oil prices are rising after the Israeli-US attack on Iran, followed by Iran’s closure of the Strait of Hormuz.
The developments have reinforced a push led by Poland and Italy to water down the EU’s carbon pricing mechanism, which puts a price on industrial pollution.
However, “many leaders” remain committed to the so-called Emissions Trading (ETS) system, one diplomat told a press conference on background.
The 2005 ETS system is foundational to the EU achieving its 2040 climate targets, and forms the basis for many other laws, including those still in development such as the Industrial Accelerator Act meant to help boost the bloc’s industrial competitiveness.
But a blocking minority of member states have grown increasingly critical of paying extra carbon costs as fossil-fuel prices once again pummel EU industries.
Italian minister for enterprise Adolfo Urso recently called for the ETS system to be “suspended.”
Poland, still heavily dependent on coal, is paying some of the highest carbon costs in the bloc.
In a letter co-signed with nine other member states, Warsaw argues the phase-out of free allowances is “too steep and overly ambitious,” according to a letter circulated before Wednesday’s council meeting.
The group comprises Austria, Greece, Italy, Slovakia, the Czech Republic, Hungary, Croatia, Romania and Bulgaria.
The group wants to extend free emission allowances beyond the current end-date of 2034 and “smooth” the phase-out set to begin in 2028.
The EU Commission is expected to review the law in July. Commission president Ursula von der Leyen has defended the system in previous comments.
But in a letter shared on Monday, she opened the door to a more “realistic” decarbonisation route after 2030, while reiterating ETS is “essential” for the industrial transition.
The push to weaken the carbon pricing system was heavily criticised by a diplomat representing a pro-ETS country on Wednesday.
“The ETS in itself is essential for our energy and industrial transition, and ETS is the best way to become less dependent on fossil fuels,” said the diplomat who requested to remain anonymous.
“The last thing we should do now is change our plan and become more dependent on fossil fuels again by delaying ETS,” the diplomat added.
Asked whether his country would agree with slowing down the pace of phasing out, the diplomat said: “We would not be enthusiastic. The whole system is that there should be less and less free allocations.”
The diplomat also indicated that member states can reduce taxes on electricity themselves: “That is the shortest-term solution.”
Another diplomat summed up the prospects of finding agreement on the EU’s carbon pricing mechanism.
“There are two schools of thought,” said one diplomat. “I don’t think tomorrow these two views will be united.”