BusinessEurope, the leading voice of companies across the European Union, representing 40 national business federations, warns that rising carbon costs are placing additional strain on businesses, adding to already high energy prices.

In its position paper, “Priorities for the EU ETS Review,” the business group calls on the European Commission to strengthen carbon leakage protection, such as free allocation and indirect cost compensation, arguing that the current safeguards are not sufficient to offset Europe’s structural competitiveness disadvantages.

“The Commission should reconsider the planned phase-out of free allowances for all sectors,” the document states, adding that the upcoming review of the EU ETS must take into account the possibility that “if CBAM does not prove effective… the phase-out of free allowances for CBAM sectors shall be postponed.”

The position paper also emphasises that the Market Stability Reserve (MSR) proved to be an efficient instrument for addressing the surplus of allowances but “has been less effective when it comes to improving the system’s resilience to major shocks.” Europe’s largest business lobby is calling for the MSR to be adapted to “the new situation where allowances are becoming scarce… to avoid price spikes.”

Pressure on the Commission from the business community to balance climate ambitions with industrial competitiveness has intensified ahead of the upcoming EU ETS review scheduled for the third quarter of the year.

According to Reuters this week, citing an internal Commission document, “officials are weighing options to overhaul free permits, including making them conditional on industrial decarbonisation.” Meanwhile, Carbon Pulse reports that the EU executive “is likely to opt for lower emission benchmark values when deciding how many free allowances to allocate to industry… giving companies more breathing space amid high energy and carbon costs.”