Austria was the latest EU member to join Germany in pushing for an extension of free carbon allowances in the EU Emissions Trading System beyond the planned 2034 phase-out, arguing that the EU's Carbon Border Adjustment Mechanism must function effectively before imposing additional costs on European industry.

"Without an extension of the free certificates, there is a risk that value creation and emissions will simply be shifted because companies will be deprived of investment funds for the transformation," Austria's minister of economy, energy and tourism Wolfgang Hattmannsdorfer said in a statement. "As long as low-CO2 technologies cannot yet be implemented across the board, the industry needs a fair transition phase."

Austria's position is in line with that of Germany, which is also calling for the European Commission to maintain free ETS allocations to prevent deindustrialization in the EU.

Under current EU ETS rules, companies must purchase certificates for every metric ton of CO2 emitted, with free allocations provided to energy-intensive sectors to prevent carbon leakage.

These allocations are scheduled to phase out gradually starting in 2026, coinciding with CBAM implementation designed to level the playing field by imposing carbon costs on imports from countries with weaker climate policies.

CBAM reforms

The Austrian position specifically demands maintaining free allowances beyond 2034 along with the reform of CBAM by 2028 as the basis for any future reduction of EU Allowances.

Austria's Ministry of Economy, Energy, and Tourism also said that the current timeline risks forcing companies to relocate production to countries with less stringent climate policies, potentially negating environmental benefits while damaging European economic interests.

"[Germany's] federal environment minister Carsten Schneider surprisingly spoke out in favor of extending free CO2 certificates in the Bundestag -- arguing that CBAM must first function smoothly before industry can bear additional burdens," the Austrian ministry added in a statement. "In doing so, Germany is following the line that Austria's minister Wolfgang Hattmannsdorfer has been advocating in Brussels for weeks."

This stance comes as the EU has introduced new tariff measures for steel and aluminum imports, which Hattmannsdorfer welcomed as protection against excess capacity from China and the US.

Energy-intensive sectors argue they need more time to deploy commercially viable low-carbon technologies, while environmental advocates worry that extending free allocations could weaken decarbonization incentives.

The EU's CBAM works alongside the bloc's ETS by imposing carbon pricing on imports, designed to prevent carbon leakage as Brussels phases out free emissions allowances for domestic producers. Under the mechanism, importers must purchase CBAM certificates equivalent to the carbon content of goods from six covered sectors: aluminum, cement, electricity, fertilizers, iron and steel, and hydrogen.

CBAM is in a transitional phase, requiring importers to report emissions without financial penalties. The mechanism enters its definitive phase on Jan. 1, 2026, with companies liable for their emissions. This is expected to have significant implications for carbon-intensive industries.

Brussels recently launched a call for evidence to gather stakeholder input as it refines technical aspects of emissions intensity calculations, free allocation adjustments and carbon price deductions in preparation for CBAM entering its definitive phase on Jan. 1, 2026. The consultation was launched on Aug. 28 and ran until Sept. 25.

The timing of the debate reflects broader tensions within EU climate policy as member states balance environmental ambitions with industrial competitiveness concerns.

Platts, part of S&P Global Commodity Insights, assessed EU Allowances for December 2025 at Eur79.10/mtCO2e ($91.95/mtCO2e) on Oct. 8.

The aim of CBAM is to level the playing field for EU companies, as most exporting countries either do not have a carbon price as high as that of the EU ETS or lack a price on emissions altogether.