EU climate instrument ETS faces major reform: Free certificates and industrial strategy in focus

As the EU Commission itself has calculated, the ETS has significantly reduced emissions in the covered sectors since 2005. "According to EU Commission calculations, the ETS has reduced emissions in the covered sectors by 50 percent since 2005." The system is thus considered one of the Union's most important climate protection instruments, which in the long term is to help make all economic sectors in the EU climate-neutral by 2050.

Industry under pressure

At the same time, the ETS is under political pressure. Industry representatives argue that the system is a disadvantage in global competition: "Der ETS sei ein Wettbewerbsnachteil am Weltmarkt und angesichts steigender Energiepreise kaum mehr zu stemmen, lautete der Tenor." A portion of the certificates in the EU ETS is, however, distributed free of charge – above all to energy-intensive industries such as steel manufacturers. This is intended to prevent these companies from relocating abroad.

The reform announced for Friday provides for two packages. "Diese umfassen einerseits die Gratiszertifikate für Industrie und die Benchmark-Anpassungen für die Zeit von 2026 bis 2030" as well as "andererseits Regelungen für das ETS nach 2030". In this way, the Commission is responding to the concerns of industry, but at the same time also to the demands of those companies that have already invested heavily in decarbonisation.

What the reform specifically provides for

A central element is the planned expansion of free certificates. "Nach ersten Informationen sollen Gratiszertifikate über die bisherige Frist 2039 hinaus bis weit in die 2040er-Jahre hinein verlängert werden." "Ferner kann die Industrie mit zusätzlichen milliardenschweren Gratiszertifikaten rechnen." Companies that have already invested massively in decarbonisation frequently explicitly support a strong ETS.

In addition, the Commission is planning the establishment of an "Industrial Decarbonisation Bank" with a volume of 100 billion euros. This is intended to facilitate investments in climate-friendly technologies in industry. The use of ETS revenues is also to be made "transparenter gestaltet werden. Ein Mindestanteil aus dem nationalen Emissionshandelssystem sollte zur Förderung von Investitionen in den teilnehmenden Sektoren reserviert werden".

A gradual expansion of the ETS is also on the table: "Eine schrittweise Ausweitung des ETS auf die kommunale Müllverbrennung soll ebenfalls auf der Agenda stehen." In addition, it is being discussed whether international emission certificates can be incorporated. According to information "könne dies allerdings nur indirekt erfolgen und wäre auch erst ab 2036 machbar".

Brussels assessment: Climate policy remains on course

Brussels think tanks do not see the course of EU climate policy fundamentally called into question by the reform. Flora Marchioro from the Brussels think tank "Bruegel" told APA that the discussion is moving within clear guardrails: "Schlussendlich gehe es derzeit nur darum, 'wie schnell wir dekarbonisieren, und nicht darum, ob wir dekarbonisieren'." On the basis of the plans published so far, Marchioro believes that the "Klimapolitik letztendlich auf Kurs bleiben wird".

Marchioro also warns against excessive expectations of an abolition of the ETS. "Es gibt also zugrunde liegende strukturelle Probleme, die das ETS selbst bei einer Abschaffung nicht lösen würde." In the expert's view, these also include energy prices, labour costs and bureaucracy, which represent a burden for the European economy independently of the ETS.

The EU thus faces a balancing act with its reform: on the one hand, the ETS should remain effective as a climate protection instrument; on the other, industries that suffer from high energy and production costs are to be relieved. The details to be presented next week are considered a litmus test for whether this political balancing act will succeed.

With the reform, the EU Commission is pursuing the goal of adapting the ETS mechanism to the tightened climate targets and to the geopolitical framework conditions. The coming days are considered decisive – not only for European industry, but also for the credibility of European climate policy as a whole.