BRUSSELS — The European Commission has proposed amending its cap-and-trade system to boost the supply of pollution permits and shield industry from soaring carbon costs, in the first of a string of changes to the EU’s most important climate policy.

The EU’s Emissions Trading System, which requires companies to pay for their pollution by purchasing permits, has come under increasing pressure from heavy industry in recent months, who say it is adding extra expense on top of already sky-high energy costs. EU ETS permits currently trade at around €75 per ton of CO2.

Some national governments have joined industry in pushing Brussels to make urgent changes to the law, ranging from increasing the number of free permits handed out to scrapping the scheme altogether.

The measure announced Wednesday is a modest prelude to potentially much more sweeping changes to the ETS later this year. It will amend an existing mechanism called the Market Stability Reserve, which puts a cap on the number of permits in circulation at any one time. It acts much the same way as oil reserves, which can be used to regulate the price of a barrel of crude. 

Introduced in 2015, the reserve’s original purpose was to boost the carbon price by removing permits from the market once the number in circulation reaches a certain level. That was because in the early years of the ETS, the carbon price was stubbornly low due to a surplus of permits in the market, meaning it wasn’t acting as a sufficient price signal for businesses to reduce emissions. 

The Market Stability Reserve is allowed to accumulate up to 400 million permits, and any permits over that number are retired under the so-called invalidation clause. When the number of permits in circulation falls below a certain level, reserve permits are reintroduced.

Wednesday’s measure has the opposite of the original goal: It aims to stop the price rising too high. It proposes removing the invalidation clause, meaning an unlimited number of permits would be able to accumulate in the Market Stability Reserve, giving the EU “more firepower” as Commission chief Ursula von der Leyen put it weeks ago when she previewed the changes.

The Commission’s thinking is that by allowing more spare permits to flow back into the system when they fall below a certain level will prevent the carbon price from staying elevated for too long — a welcome change for Italy, Poland, Austria, and other allies who led calls for reexamining the ETS in light of the energy crisis wrought by the U.S.-Israeli war in Iran.

At Wednesday’s midday briefing, Commission spokesperson Eva Hrncirova said the proposal is part of a broader effort to stabilize prices, noting that boosting the reserve’s capacity “should bring more stability and reduce price volatility.”

Officials also pushed back on suggestions the move contradicts the EU’s green agenda. “There is no contradiction here at all,” deputy chief spokesperson Olof Gill said, arguing the bloc would “continue on the path to decarbonization” while responding to the current energy crisis.

The Commission is due to recommend much deeper changes to the ETS later this year, and said Wednesday this would likely extend the scheme’s life beyond 2039. Under the current trajectory, the total cap on emissions is due to gradually decline to zero by 2039. 

‘A welcome first step’

Environmental watchdogs and EU diplomats who opposed opening up the ETS have said the changes could lead to more pollution and increased emissions in the bloc, in favor of pleasing industry players.

An EU diplomat from a country fully backing the ETS, told POLITICO  the amendment was “big in accommodating countries that have concerns about spikes in CO2 prices,” but pointed out that “a large group of [countries] didn’t ask for this change in the first place.”

Grumblings about weakening the EU’s landmark climate policy have been growing for months, if not years, with Hungary — increasingly Euroskeptic and openly desirous of importing cheaper Russian energy to offset domestic costs — calling for it to be halted or scrapped at a meeting of EU energy ministers weeks ago.

Among industry players, however, there is still support in largely maintaining the EU’s key environmental policy, but with caveats. 

Adolfo Aiello, deputy director general of Eurofer — the lobby for European steelmakers — described the removal of the invalidation clause as “a welcome first step” ahead of the full review of the ETS expected by July.  

“The ETS must strike the right balance,” said Aiello, “That review will be decisive in ensuring the system remains fit for purpose, delivering for industry, climate and the economy.”

During the Commissions’ midday briefing on Wednesday, EU Commission spokesperson Eva Hrncirova said that work is still ongoing and that.