Pressure on the ETS system is growing: Berlin wants reform, Rome suspension

The European Emissions Trading System (ETS) is facing the strongest political pressure in its 20-year history. A large group of industry ministers is calling for a far-reaching review, reflecting concerns voiced by industry representatives. Italy even wants the system suspended, at least until an agreement on reform is reached. Germany is calling for an accelerated adjustment of its parameters. France is more cautious, while Sweden warns against dismantling a successful EU climate policy instrument. The dispute over the future shape of the ETS has thus become one of the main issues on the EU agenda in recent days.

The debate on reforming the ETS has been ongoing for a long time, but has intensified in recent days and weeks. Calls from representatives of energy-intensive sectors have now fully translated into a fairly heated political debate at ministerial level.

The Alliance of Energy-Intensive Industries, in a joint position paper, is calling for a maximum electricity price for industry of 50 euros per MWh. It says investment in electrification is stagnating and competitiveness against third countries is deteriorating. It also wants to retain compensation for indirect ETS costs after 2030. BusinessEurope, Europe’s largest organisation representing industry, meanwhile proposes reconsidering the full phase-out of free allowances if the CBAM carbon border levy does not prove effective.

A series of meetings at political level followed in recent days. On Wednesday, a meeting was held in Brussels under the Friends of Industry initiative, where industry ministers coordinated ahead of the Competitiveness Council meeting. On Thursday, the issue then dominated the Council itself, where member states built on the previous discussion and presented joint positions on the ETS review.

The result is a joint statement by thirteen member states – Italy, Austria, Croatia, Czechia, France, Germany, Luxembourg, Poland, Portugal, Slovakia and Spain.

This group of countries is calling for the ETS review to ensure an “effective price signal”, together with “predictability and market stability” and protection against “excessive price volatility”. They also call for a “pragmatic and investment-compatible” approach to the allocation of free allowances. They warn that lowering the emissions cap could bring “high price levels, increased volatility and limited liquidity”.

Suspend, reform or preserve

Following the Competitiveness Council meeting, ministers made forceful statements. Italy has gone the furthest. Industry Minister Adolfo Urso described the ETS as “another tax on European businesses that raises their costs and limits competitiveness”. He openly called for the system to be “suspended until a comprehensive reform is carried out”. He warned that Europe faces “the collapse of the chemical industry” and that, without rapid change, production risks permanently moving elsewhere.

Prime Minister Giorgia Meloni also struck a tough tone. Following a meeting with the Cypriot president in Rome, she stressed that, under the current setup, Europe cannot expect its companies to compete globally. She described cutting energy costs as an “absolute priority”.

Poland, which has long advocated changes to the system, is also speaking of the need for immediate relief for companies. According to Deputy Minister Michał Baranowski, there is a “shared understanding at European level that industry needs immediate and tangible relief” and that “the carbon price must be reduced”.

Germany rejects suspending the system, but through Economy Minister Katherina Reiche is pushing for the fastest possible reform to mitigate the impact on energy-intensive sectors.

Sweden defends the system, France remains cautious

By contrast, the Netherlands and Finland have voiced restrained opposition to reform. Sweden, however, has defended the system most strongly. Minister Ebba Busch recalled that the ETS is “the cornerstone of EU climate policy, ensuring long-term predictability and a stable carbon price.”

“It is one thing to call for fine-tuning the CBAM or ETS system, but demanding what is essentially heart surgery on one of the most successful economic instruments the Union has means risking a complete halt to blood circulation,” she warned.

She described the current debate on radical reform as a consequence of “some states not having done their homework”.

France is taking a middle course. According to Minister Sébastien Martin, some points need to be discussed again, particularly in relation to the CBAM, but “blowing up the entire system is not France’s position.”

The dispute over the shape of the ETS is therefore growing beyond a technical discussion of market parameters and becoming a test of the Union’s political cohesion and strategic direction. Some states want to adjust the system before it damages industrial competitiveness, while others warn against signalling that Europe is retreating from its established rules. Where the balance between stability and change will ultimately lie remains open.