What the Commission proposed
The ETS is the EU’s largest climate instrument. It covers roughly 40 percent of the bloc’s emissions and has cut emissions from covered sectors by about half since 2005. It works through one mechanism: a cap that shrinks every year by a fixed share of a historical reference amount, currently 4.3 percent, rising to 4.4 percent from 2028.
Friday’s proposal, detailed by Reuters and Sweden’s Dagens Nyheter, slows that decline twice. From 2031, the cap falls by 3.7 percent a year. From 2036, by 1.7 percent. Free allowances for heavy industry, scheduled to end by 2034, would instead run until 2038, four extra years of lower costs for fossil producers. There are constructive elements: some free allowances become conditional on decarbonization investments, at least half of member states’ ETS revenues must fund industrial transition, and the system expands to smaller ships, more flights and waste incineration. Negotiations with member states and Parliament begin Monday and are expected to take up to a year.
Each element sounds incremental. The arithmetic is not.
The math nobody published on Friday
The annual reduction applies to a fixed reference quantity of roughly 2,000 million allowances, derivable from the Commission’s own cap decision, which makes the consequences of Friday’s percentages fully calculable. So I calculated them by comparing the total allowances still to be issued under current law with the total under the proposed path, and the difference is roughly 2.4 billion allowances, each a permission to emit one tonne of CO2, with any reasonable counting convention landing between about 2.1 and 2.6 billion, and the point at which the main ETS cap reaches zero moved from around 2040 to around 2050.
In practical terms, the system could keep issuing new permissions for fossil emissions for roughly a decade longer than current law allows; independent analysis of the published text confirms allowances would continue to be issued into the 2040s rather than ending around 2039. The proposal contains its own hedge: the 1.7 percent rate is conditional on high-quality international credits materialising, and reverts to 2.7 percent from 2036 if they do not. Run the numbers on that stricter fallback and the extra allowances still come to well over a billion, roughly 1.2 to 1.4 depending on convention. The full calculation, every step and every assumption, is in the fact box at the end of this article.
Two numbers now exist, and they measure different things while pointing the same way. The Commission’s own impact assessment models what companies will actually emit, and finds the preferred options produce 911 million tonnes more cumulative emissions by 2040 than continuing current law. This article’s arithmetic measures the fuller question the assessment stops short of: how many additional allowances the revised trajectory creates over the cap’s whole lifetime, which runs to around 2050, a decade past the assessment’s horizon. That answer is roughly 2.4 billion. Actual emissions will always be at or below the allowances issued, so the two figures are consistent: through 2040 this article’s allowance gap is roughly 1.3 billion, sitting above the Commission’s modelled 911 million exactly as the mechanics predict.
Three caveats, briefly. These are allowances, not guaranteed emissions; the market stability reserve absorbs surplus; and the proposal adds carbon removals and, indirectly, international credits that offset part of the gap. But the direction is not in dispute, and the Commission’s own modelling confirms it: higher cumulative emissions under the revised trajectory. More allowances, for longer, at a lower price.
What do 2.4 billion allowances look like?
More than half a year of the entire European Union’s emissions. More than half a century of Sweden’s, everything the country has emitted since the early 1970s, with a notional value around 190 billion euros at Friday’s carbon price.
Or measure it against what climate science allows. The flagship estimates put humanity’s remaining budget for an even chance of 1.5 degrees at between roughly 90 and 170 billion tonnes (Global Carbon Budget 2025), about four years at current emissions. One European proposal, framed as a technical adjustment to a reduction factor, would by itself make room for up to 3 percent of everything left for all of humanity, and for between a quarter and half of the EU’s own population-proportional share of it.
The companies that believed Europe
The reaction from the north was immediate. Sweden’s prime minister Ulf Kristersson, no one’s idea of a climate radical, wrote that Friday’s proposal “is unfair to Swedish companies that have been at the forefront” of the transition. Days earlier, he and Finland’s prime minister Petteri Orpo had warned Commission President Ursula von der Leyen in a joint letter that eroding the established framework “would penalise early movers and send a deeply unfortunate and damaging signal” to investors. Isabella Lövin, Swedish Green member of the European Parliament, needed one sentence: Europe is changing the rules in the middle of the game.
And the money behind Stegra is not adventure capital. In April, a consortium led by Wallenberg Investments, the vehicle of the family sphere that has anchored Swedish industry for more than a century through its stakes in companies like Ericsson, SEB and Atlas Copco, agreed to lead a 1.4 billion euro financing round to complete the Boden plant. The round closed in June, with the consortium taking control and former Volvo chief Leif Johansson as chair, and with the investors framing the project as “an important step in Sweden’s competitiveness and the EU’s security of supply.” Jacob Wallenberg, the sphere’s vice chair, publicly warned in June against changing the ETS. One month later, the Commission changed it.
SSAB told Dagens Nyheter it is analyzing the proposal. Stegra said it has planned for a range of carbon prices and would remain profitable, adding that lower ambitions are unfortunate, above all for the climate. To be precise about the economics: the green steel case does not rest on the carbon price alone. It also rests on cheap Nordic renewable power, on the EU’s carbon border tariff against dirtier imports, and on customers willing to pay a green premium. But the price trajectory is the keystone that makes those pieces converge on a date, and Friday moved the date. Notice, too, what has happened to the conversation: Europe’s flagship green industrial projects are now publicly reassuring investors that they can survive Europe’s climate policy.
Behind the dilution stand ten of the EU’s largest economies, among them Poland, Italy, Czechia and Austria, arguing that energy prices and permit costs risk closures and relocation. Those pressures are real, and they deserve a serious answer rather than a dismissal. But Europe’s own competitiveness debate had just delivered one: nine days before the proposal, the World Economic Forum’s growth initiative reported the consensus of European leaders gathered in Dublin and Berlin, that continued dependence on fossil fuels has left the region particularly vulnerable, and that steadfast decarbonization can be a source of growth and competitiveness. With euro area growth forecast at 1.1 percent this year against China’s 4.4, and energy costs spiking again after the Middle East supply shock, weakening the tool that prices fossil dependence out of the system is a strange reading of Europe’s own diagnosis.
One political detail makes the fight stranger. Ulf Kristersson, Petteri Orpo and Ursula von der Leyen all belong to the same center-right European political family, the EPP, whose group leadership spent the spring lobbying for exactly the softer path the Commission delivered. In effect, an EPP Commission granted an EPP wish over the objections of EPP prime ministers. The real dividing line on the ETS is not left against right. It is early movers against late ones.
The Commissioner’s defence, taken at its word
Climate Commissioner Wopke Hoekstra defended the package within hours, writing on LinkedIn that the trajectory is “fully in line” with the EU’s 2040 goals and that “free allocation does not mean free cash,” since free allowances become conditional on decarbonization investments. He named three weaknesses the review is meant to fix: an unlevel global playing field for European industry, companies choosing to invest outside Europe, and the fact that member states have spent less than 10 percent of their ETS revenues on industrial decarbonisation. That last admission is candid and important, and the package’s answer to it, earmarking at least half of national ETS revenues for industrial transition alongside a new 100 billion euro Industrial Decarbonisation Bank, is genuinely constructive.
But take the defence at its word and two things follow. First, all three weaknesses the Commissioner names are addressed by the proposal’s constructive elements, the investment conditionality, the revenue earmarking, the funding instruments, and every one of those could have been enacted with the current cap trajectory intact. The slower cap, the package’s most consequential change, directly solves none of the three problems on his own list. Second, “fully in line with the 2040 target” and 2.4 billion additional allowances are both true at once, because the target is economy-wide and net. The ETS’s shrinking contribution does not shrink the target; it moves the effort to forests, farms, buildings and transport, the sectors where cutting is politically hardest, and to carbon removals and international credits whose delivery is a promise about the 2030s made in 2026. The tonnes leave the carbon market’s ledger. They do not leave the atmosphere’s.
Notably absent from the Commission’s public presentation on Friday, and from the Commissioner’s defence of it, was any cumulative figure for how many additional allowances the slower trajectory would produce. Asked directly whether the Commission accepts this article’s figure or has its own, a Commission spokesperson referred to the published explanatory material and the launch press conference. Credit where due: buried in the impact assessment, the Commission’s own modelling does quantify the near-term cost: 911 million tonnes of additional cumulative emissions by 2040 under its preferred options compared with current law. What it stops short of is the lifetime figure: how many additional allowances the revised trajectory creates before the cap finally reaches zero around 2050. To my knowledge, no Commission document or public analysis has yet quantified that lifetime increase: roughly 2.4 billion. Neither figure featured prominently in Friday’s public communication.
One more thing should be said in the Commission’s defence, because it is true: none of this was done out of malice. Anti-climate forces are gaining ground across Europe, and many in Brussels genuinely believe that bending the ETS now is what saves it from being broken entirely by a harder Parliament in a few years. That is a real dilemma, and I do not doubt that several of the people behind Friday’s package fought for more behind closed doors. But a compromise made to protect the climate should be described as what it is, a costly retreat under pressure, not presented as staying on course. The numbers count the cost either way.
Three weeks, two promises, one pattern
This is where Friday stops being a story about steel and becomes a story about trust, because it is the second time in three weeks that Europe has moved against its own pioneers.
On June 24, as I reported earlier this month, the EU Council agreed that companies expanding oil and gas production can qualify for a “transition” investment label under the SFDR, Europe’s sustainable finance rulebook, provided a fifth of their spending is green. The Parliament committee vote on that file, scheduled for July 15, has been delayed amid disagreement over precisely the transition category; the committee’s official roll-call records for July 15 confirm the vote did not take place, and Parliament’s position is now expected in the autumn.
Set the two decisions side by side and the symmetry is hard to miss. Europe’s climate framework made its pioneers two promises. The label was a promise about information: investors could tell a genuine transition company from a pretender, and reward it with cheaper capital. The carbon price was a promise about incentives: moving early would pay, because polluting would get more expensive on a schedule you could take to a bank. The Council’s SFDR position breaks the first promise by handing the transition label to companies drilling new oil fields. The Commission’s ETS proposal breaks the second by flattening the price path that made a hydrogen steel plant in Boden rational.
The contradiction is sharpest where the two proposals meet. An oil major expanding production could qualify for the transition label that channels Europe’s sustainable capital, while an actual transition company watches its carbon price erode and its fossil competitors collect free allowances until 2038. In a single month, Europe risks rewarding the companies moving backwards while unsettling the ones moving forward.
In the earlier piece I described what economists predict for markets where buyers cannot tell quality from imitation: the honest product gets crowded out. The same logic applies to policy promises. Investors can handle a high carbon price. They can handle a low one. What they cannot price is politics, a trajectory that moves whenever the lobbying gets loud enough. The assumption that the cap would keep tightening on its legislated path was broken on Friday, and every boardroom modeling a European clean investment must now add a premium for the possibility that the next revision moves the line again. That premium lands on exactly the investments Europe says it wants.
One more irony belongs on the record. The same morning, the Commission published its Electrification Action Plan, a roadmap for clean, homegrown power that, by the plan’s own estimate, could save Europe up to 260 billion euros a year on fossil fuel imports by 2040. The carbon price is that plan’s engine; it is what makes the electric furnace beat the fossil one on a spreadsheet. Europe published the map and loosened the engine in the same news cycle.
Nothing is decided, and the clock is honest
The summer’s heatwave, which scientists say would have been virtually impossible without warming and which killed thousands across Europe, is the backdrop every reader already knows. It does not need embellishing. The relevant fact is procedural: none of this is law. ETS negotiations begin Monday and run up to a year. The SFDR label goes to Parliament in the autumn. Both halves of the pattern are still open, and Sweden, Finland and Spain have shown that member states will fight for the early movers.
Those negotiations will answer a question bigger than either file. A label is a promise about what money means. A carbon price is a promise about what pollution will cost. Europe built its climate credibility on those two promises holding. The allowances at stake can be counted. This article has counted them: roughly 2.4 billion. What Europe’s word will be worth if both promises bend in the same month cannot be counted. That is the asset on the negotiating table, and it is worth more than the allowances.
