Claudio Descalzi, CEO of Italian energy giant Eni said on October 15 that EU should suspend its carbon emissions trading system (ETS), arguing that it is burdening the bloc’s industrial sector as companies face the effects of the wars in Ukraine and Iran.

“The emissions trading system should be suspended until a solution is reached to the Russia-Ukraine war and the Gulf war, because it is an extremely costly levy for our industrial sector,” Descalzi said, according to Reuters.

The ETS is the EU’s flagship carbon-pricing mechanism, launched in 2005. It operates on a “cap-and-trade” principle in which the EU sets a limit on emissions from sectors including electricity and heat generation, energy-intensive manufacturing, aviation and maritime transport. This cap is reduced over time to encourage companies to lower their emissions.

Under the EU ETS, covered industrial facilities, including refineries, must hold emissions allowances to cover their greenhouse gas emissions, exposing them to carbon-price fluctuations.

For oil and gas companies, carbon-related costs add to the financial pressure at a time when geopolitical conflicts in the Gulf and the Russia–Ukraine war are disrupting energy supplies and raising operating expenses.

The EU leaders is currently gathering in Brussels to discuss on European competitiveness, high energy prices, and proposed reforms to the EU Emissions Trading System (ETS).