CJEU confirmed that the EU ETS is carefully designed to strike a balance between reducing emissions and protecting the competitiveness of European industry. A key element of this system is the free allocation of allowances to sectors exposed to international competition. According to the judgment, national taxes that significantly reduce or eliminate the economic benefit of these free allowances risk undermining that balance and may therefore conflict with EU rules.
Importantly, the CJEU stopped short of declaring the Hungarian tax unlawful outright, leaving the final assessment to the national court. However, it made clear that if a tax effectively deprives companies of the value of their allowances or distorts the incentives created by the EU ETS, it could breach fundamental EU principles, including the protection of property and the freedom of establishment.
For businesses operating in carbon-intensive sectors, this decision is a reminder to closely monitor national measures affecting emission allowances. For policymakers, it signals that while environmental taxation remains within national competence, it must not interfere with the functioning of EU-wide climate instruments. The ruling therefore, marks an important checkpoint in defining the limits of Member States’ fiscal autonomy in the context of EU climate policy.