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(Bloomberg) — The European Union is seeking to cushion the impact of a new €30 billion ($35 billion) tool to drive the clean-energy transition by designing it in a way that avoids flooding the carbon market with permits and depressing prices. 

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European Commission President Ursula von der Leyen pledged in March the EU will come up with a new instrument based on 400 million existing allowances in the Emissions Trading System to finance decarbonization projects. The commission plans to spread out sales of permits from the so-called ETS Investment Booster to prevent sudden price moves, according to people with knowledge of the matter.

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EU climate and energy policies are at the top of the bloc’s political agenda as fallout from the Iran war compounds fears that the region is losing its competitive edge against China and the US. The commission is seeking to balance its ambitious emissions-reduction goals with concerns among some governments and heavy industry that carbon costs are inflating already high energy prices. 

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Benchmark carbon contracts traded at around 79 euros per ton on Thursday. Brussels estimates that the cost of carbon accounts for around 11% of electricity prices on average, with countries relying on clean energy facing a smaller burden. Countries like Poland, where the share of carbon costs in the power bill is as high as 24%, have led the push for a new EU instrument to alleviate the financial strain of the energy transition.

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The details of the new ETS-based instrument will be outlined when the EU unveils a review of its flagship cap-and-trade emissions program on July 15. The allowances in the booster will come from a reserve for new entrants in the ETS and from an existing buffer of free permits that can be handed to companies as support of low-carbon investments, said the people, who asked not to be identified discussing a confidential matter.

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The commission was not immediately available for comment.

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The new tool is set to become part of the EU Industrial Decarbonization Bank, a broader instrument that is expected to secure 100 billion euro in funding for the energy transition, according to the people. 

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Once unveiled by the commission, the ETS review will be discussed by the European Parliament and member states in the EU Council. Each of the institutions has the right to propose amendments in a legislative process that typically takes as long as two years. 

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One option under consideration by the commission is to propose fast-tracking a part of the reform to bring forward permit sales under the booster, helping to accelerate the industrial shift to cleaner energy.

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