The anti-ETS coalition challenges Brussels ahead of the reform

Translated by Giulia Girardi 

Not many weeks before the reassessment of the Emissions Trading System (EU ETS), the European Union is striving to deal with a challenging issue: could decarbonisation goals ever be achieved without compromising or sacrificing the industrial competitiveness of the Old Continent?

More recently, the debate gas gained momentum, since numerous industrial giants urged Brussels to take action on the carbon market — considered as the backbone of the European climate strategy. At the heart of the matter are the growing costs of carbon emissions and the concerns that European manufacturers bear burdens that the major international competitors do not need to bear.

At the forefront are some of Germany’s largest industrial groups, letting contradictory aspects emerge: Despite Germany remaining one of the strongest advocates of the European green transition, it is also the country where huge concerns about the economic impacts of climate policies are mostly emerging.

For more than twenty years now, the EU Emissions Trading System (EU ETS) has served as a significant tool for cutting emissions in energy-intensive industries. Its scheme has been shaped starting from a relatively simple concept: setting an overall cap on permitted emissions and assigning an economic value to carbon dioxide, thereby encouraging companies and operators to invest in cleaner technologies.

Through the years, this system has become one of the cornerstones of the European climate policy framework. Currently, it is applicable to industrial installations, power generation, aviation and maritime transport, while another scheme (ETS2) — designed for buildings and road transport — is expected to be fully implemented by 2028.

According to the European Commission, the mechanism has made a significant contribution to reducing emissions in the sectors it covers, demonstrating how carbon pricing can influence investment choices without depending exclusively on prohibitions or regulatory requirements.

Therefore, the upcoming reform is particularly significant: After the ultimate approval of the European 2040 climate target, the Union needs to verify whether the current structure of the ETS is capable of supporting the next phase of the climate transition.

Reconsidering this system might redefine the carbon market

The assessment planned by the European Commission will extend beyond purely technical and strategic considerations. It will address questions that could profoundly reshape the functioning of the EU ETS system in the next decades.

The role of carbon dioxide removal technologies, the possible inclusion of new economic sectors, the management of carbon capture, and the risk that certain production activities can possibly be relocated to countries with less stringent environmental standards are key issues within the debate.

In addition to this, particular attention will be devoted to specific mechanisms designed to guarantee market stability, as well as the use of revenues generated from the auctioning of emission allowances. The objective is to preserve the effectiveness of the system without compromising the ability of the European industrial apparatus to invest in technological transformation.

In recent months, Brussels has introduced some preliminary changes. The new 2026-2030 benchmarks proposed should continue ensuring a significant share of free allocations for the companies that are most exposed to international competition, while new funds are going to support industrial decarbonisation projects.

Thus, the European Commission aims to convey a direct message: The green transition cannot become the reason for industrial production loss within the Union.

The letter warns the involved institutions: "Europe risks moving ahead on its own.”

Despite these adjustments, a significant part of the industrial actors involved considers the measures inadequate.

In a letter addressed to the leaders of the European institutions, around forty major industrial groups called for urgent action to prevent a further increase in emission-related costs. The signatories include some big industrial names of Europe, such as BASF, Thyssenkrupp and AcelorMittal.

The companies believe that the current problem is not only linked to the rising price of carbon dioxide, but also to other relevant factors: increasing international competition and infrastructure — still considered insufficient to support a rapid industrial transition.

The involved companies believe that much of the technology necessary to enact the transition — from hydrogen to carbon capture systems — remain largely unavailable and have still not reached the competitiveness needed to ensure a rapid transformation of the production system.

Hence the call to avoid any further restrictions of the EU ETS system, introducing mechanisms aimed at limiting rising costs for European companies.

This stance reflects a growing sentiment within certain industrial sectors: the belief that Europe is imposing climate standards that are far more stringent than those of the major global economies, thereby risking a disadvantage in a time marked by weak growth and fierce global competition.

Germany and the Green Transition Dilemma

Germany is certainly a country where this tension is particularly evident.

For many years, Germany has been considered the engine of the European climate policy. At the same time, the German economic model still relies on an energy-intensive manufacturing sector that is is undergoing profound transformations.”

Rising energy costs — due to the geopolitical crisis the world has been experiencing —, the increasingly powerful role of China within the global market, and the need for massive investment in decarbonisation are placing significant pressure on several industrial sectors, from chemicals to steel.

Therefore, it is not surprising that numerous critiques on the recent review of the EU ETS system come from German industrial leaders.

Simultaneously — and paradoxically —, Germany also needs to deal with ever-increasing obstacles regarding the achievement of its climate goals. Despite the most recent investments in the renewable energy sector — adopted within the last few years — several consulting companies warned about the risk that the country may fail to meet the emissions reduction goal that has been set for the next decade.

Industrial progress and energy generation continue to be counterbalanced by challenges linked to transport, buildings, and land-use management. The carbon absorption capacity of forests and soils is also showing signs of decline, making it more challenging to achieve long-term targets.

This is why Germany needs to reconcile two priorities that often seem to be in conflict: preserving the competitiveness of its industry while honouring climate commitments at both the national and European levels.

A debate that will redesign the future of Europe

The revision of the EU ETS system — planned for July — goes beyond the debate around the environmental market. The European modus operandi aimed at managing the linkage between climate politics, industrial politics, and economic growth is also at stake.

On the one hand are those who believe it is essential to maintain a strong price signal to guide investments and accelerate decarbonisation. On the other hand, there are companies and industry representatives who fear a gradual erosion of the European production apparatus due to the absence of adequate economic conditions and infrastructure.

With the strength of its industrial sector and the difficulties encountered on the path to climate neutrality, Germany has now become the symbol of this dilemma.

The forthcoming decisions will certainly shape the future of the European carbon market. They may also help define the delicate balance between climate ambition and economic competitiveness that will guide Europe throughout its path to 2050.

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