Portugal is urging the European Commission to reconsider its recent decision to reduce free polluting allowances for the industry under the bloc’s carbon market, fearing the move would weaken companies’ ability to invest in decarbonisation, according to a document seen by Euronews.
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Portugal’s energy minister, Maria da Graça Carvalho, argues that the Commission review of the industry’s free allocations for the 2026–2030 period under the Emissions Trading System comes at a particularly difficult moment for Europe’s energy-intensive industries, which have been struggling with high energy prices and production costs.
Under the ETS, industries need to pay for the carbon pollution linked to their production but they are also eligible for free allowances to prevent production from moving outside the EU to countries with weaker climate policies.
With the Commission’s decision to reduce these allowances, Graça Carvalho argues that companies are already grappling with elevated energy costs, intense international competition and investments tied to the transition to greener production methods.
Portugal is proposing a temporary freeze on the previous carbon allowance volumes until the wider ETS review due on 15 July is completed. The government suggests that any freeze should be targeted at each industry sector to ensure that companies continue receiving meaningful protection from excessive compliance costs.
“The ETS no longer reflects current global realities. Europe is effectively acting alone in imposing rapidly rising carbon costs on its industry already facing structural cost disadvantages like higher energy prices and regulatory costs. This combination is eroding competitiveness at an accelerating pace,” reads the letter.
Portugal doesn’t appear opposed to climate action, but advocates a “more gradual and realistic” transition that aligns environmental objectives with economic and technological realities. The letter focuses on the ceramics, glass and cement industries, which are especially vulnerable to the proposed changes.
Backing traditional industry
The ceramic industry receives particular attention due to its significance to Portugal’s industrial economy and regional employment. According to the government, many ceramic facilities are already relatively low-emission installations, yet they remain heavily exposed to ETS carbon allowances.
While acknowledging that many operators have invested in efficiency improvements and adopted lower-carbon fuels such as biomass, Portugal contends that commercially viable alternatives, including renewable gases and hydrogen, remain insufficiently available and often prohibitively expensive for widespread industrial deployment.
“This could significantly increase compliance costs, reduce the financial capacity of operators to invest in decarbonisation,” reads the letter.
The European Ceramic Industry Association (CERAME-UNIE) warned that if the Commission goes ahead with the proposed changes, it could result in an “unjustified increase in carbon costs, amounting to a surge in carbon costs by over €500 million in 2026 compared to 2025 and total additional costs of €2.5 bn during 2026–30.
“In recent years, the sector has experienced a sharp decline in activity across the EU, with production falling by approximately 30%, trade balance shrinking by more than 50%, and employment decreasing by 10%,” reads a CERAME-UNIE statement.
Rules vs reality
Lisbon argues that cutting carbon allowances could create a significant gap between what industries are obliged to comply with and the technological realities of industrial operations.
The government warns that higher compliance costs could reduce firms’ financial capacity to fund decarbonisation investments and increase incentives for production to relocate outside the EU, a phenomenon known as carbon leakage.
Portugal also suggests that the EU executive’s revision of free allowances immediately before a broader review of the ETS due in mid-July would introduce unnecessary regulatory uncertainty.
Heavy industry goes all-in against the ETS
Meanwhile, a coalition of European industrial groups is urging EU leaders to halt what it describes as a “dangerous escalation in carbon costs” warning that the bloc’s flagship carbon market is becoming a threat to competitiveness rather than a driver of industrial transformation.
“Europe’s industrial base is under acute pressure. In view of the upcoming reform of the EU ETS, we call on you to take immediate action to halt the escalation of ETS-related costs and avoid further damage to Europe’s manufacturing base,” reads a letter signed by 33 heavy-industry players spanning the chemicals, steel and metals sectors.
Several EU countries have also been lobbying the Commission to significantly water down or scrap the bloc’s carbon market.
