The European Union has proposed slowing the pace of carbon emission reductions for businesses as part of a major overhaul of its climate policy.

The proposed changes would give some industries more time to reduce their greenhouse gas emissions under the EU’s Emissions Trading System (ETS).

Under the reforms, certain companies could continue receiving emission allowances until 2038, instead of 2034, if they commit to investing in decarbonisation projects.

EU Climate Commissioner Wopke Hoekstra described the approach as more business-friendly while saying it would continue to support the bloc’s long-term climate goals.

The European Commission said the proposed changes are designed to keep the ETS aligned with the EU’s target of cutting carbon emissions by 90% by 2040, compared with 1990 levels.

The ETS requires industries and power plants to purchase permits for every tonne of carbon dioxide they emit. Companies can also trade permits, creating a financial incentive to invest in cleaner technologies.

Under the new proposal, the annual reduction in the number of available permits would slow from the current rate of 4.3% to around 3.7% from 2031 and 1.7% from 2036.

The EU is also proposing to extend free permits for some industries until 2038. Companies that commit to investing in European decarbonisation projects could receive 80% of their free permits upfront, with the remaining 20% provided after the investments are completed.

The proposals still need approval from EU member states and lawmakers, a process that could take up to a year.

Some countries, including Poland, are already calling for further changes to weaken the policy.