Fuel Price Surge Reopens EU Fight Over Looming Carbon Cuts

Soaring energy costs have reignited a feud over European Union plans to widen a key program to cut carbon emissions, with Italy and the Czech Republic leading a fresh charge to delay the move.

Italian Prime Minister Giorgia Meloni and her Czech counterpart Andrej Babis will discuss the issue when they meet in Prague later on Tuesday, according to diplomats with knowledge of the meeting. The two leaders specifically want the EU to stall a 2028 expansion of the bloc’s Emissions Trading System — a cap-and-trade scheme that puts a price on carbon emissions — to cover heating and road transport fuel.

The prospect has other countries warning that the postponement would undermine the EU’s climate goals, given the market’s central role in lowering planet-warming emissions. A group of six countries, including Denmark, the Netherlands and Spain, has banded together to implore the bloc to stay the course, after the expansion was already delayed a year.

“We are concerned by recent calls for further amendments to and postponement of ETS2,” said the group, which also includes Finland, Sweden and Luxembourg, in a statement shared with other EU countries and seen by Bloomberg. “Going forward, EU businesses and households need political stability and predictability.”

The renewed fight underscores the EU’s high-wire act on climate policy. The bloc is trying to stick to its ambitious 2050 net zero target, but without harming its ability to compete with the US and China or angering voters over higher prices. Four elections next year in the EU’s biggest economies — France, Italy, Spain and Poland — will only make things more politically fraught.

To address concerns about the carbon market’s expansion, the European Commission, the EU’s executive arm, has already proposed new measures meant to prevent price jumps and alleviate energy cost concerns. Ministers are set to sign off on these tweaks during their Oct. 9 meeting in Luxembourg.

Still, that’s not enough for countries like Italy and the Czech Republic, whose leaders argue that broadening the ETS while prices are elevated will only damage the buildings and transport sectors and erode people’s purchasing power, said the diplomats, who spoke on the condition of anonymity to discuss the private talks.

European gas prices have more than doubled since the start of the war and reached their highest level since late 2022 earlier in September. Meanwhile, power prices in France rose around 77%, while spiking roughly 60% in Germany.

At their meeting in Prague, Meloni and Babis will also discuss a broader reform of the existing carbon market, ETS1, which the commission proposed in July.

Launched in 2005, the EU’s carbon market imposes gradually shrinking emissions caps on more than 10,000 facilities in sectors from steel to cement to chemicals. Carbon costs account for about 11% of electricity bills across the bloc on average, with heavy industry criticizing them as too burdensome. The effect is larger in countries more reliant on fossil fuels, like Poland, where the share of carbon costs in the power bill is as high as 24%.

Meloni and Babis will seek measures to better shield European companies from new costs under the ETS reform, the diplomats said. That includes a way to temporarily offer more flexibility around free emission permits in sectors such as ceramics, steel, cement and other energy-intensive industries.

They also want to reduce the impact of carbon prices on electricity prices, potentially by temporarily limiting the pass-through of emission costs to wholesale prices, the diplomats said. Another goal is to strengthen transparency and oversight of the ETS through closer monitoring by the commission, the European Securities and Markets Authority and the European Union Agency for the Cooperation of Energy Regulators.