EU Commission presents emissions trading reform – industry to receive more pollution rights

Particularly energy-intensive industries – including the chemical and steel industries – receive some of their certificates free of charge. These free certificates are being reduced more and more. With the reform, the Commission now wants to relax the previous benchmarks for the period 2026 to 2030 so that industry receives more pollution rights.

What the reform provides for

The EU Commission is today proposing a reform of the greenhouse gas trading system. It wants to respond to demands from industry and numerous EU member states that have been calling for relief for months. The reform concerns the ETS-1 emissions trading system. In addition, the greenhouse gas trading system could be extended to other areas – discussions include greater inclusion of air and sea transport or waste incineration plants.

The industry association BDI demands that emissions trading be reformed in such a way that industrial production is preserved in Europe in the long term – and sees the risk of plant closures and production relocations without "course corrections." "Emissions trading does not help the planet, but causes economic damage," said BASF CEO Markus Kamieth, who is also president of the European chemical industry association CEFIC. He criticized that emissions trading in its current form tempts companies to shut down production in Europe.

Voices from industry and politics

CDU politician Peter Liese urges that the fight against climate change must remain at the very top of the EU's agenda. At the same time, the ETS in its current form is associated with excessive burdens for many companies, according to the environmental policy spokesman of the EPP Group. More free certificates are needed than are provided for in the current system – tied to clear conditions. "It would make most sense to link them to investments at the respective site," said Liese.

According to SPD politician Tiemo Wölken, the reform decides "whether Europe can combine climate protection and industrial strength – or whether we let our industry run into a fossil dead end." Aid – for example in the form of free allocations – must be firmly tied to binding commitments for investments and the preservation of jobs in Europe.

Green Party member Michael Bloss warns the Commission against putting the brakes on climate protection. "Anyone who weakens emissions trading is pulling the rug out from under precisely those companies that invested early in clean production and thereby secured employment and prosperity. Pioneers must not be turned into losers." "Future generations will have to bear the brunt, because their health, their quality of life and their freedom are at stake," he said.

Risks and criticism

Linda Kalcher of the Brussels think tank Strategic Perspectives calls emissions trading a flagship project because it decouples economic growth from emissions and finds imitators worldwide. She now calls on the Commission to strike a pragmatic balance between "legitimate concerns of industry and unfounded political attacks." "If this fails, the market price will collapse and investor confidence will be undermined for years to come," said Kalcher.

The EU still aims to be climate-neutral by 2050. Accordingly, the EU must reduce its greenhouse gas emissions by 90 percent by then compared to 1990. The EU wants to protect European industry from migration in this way. Germany wants to stick with the ETS, but is increasingly focusing on competitiveness and wants certain exemptions for industry. Northern European countries such as Sweden and Finland favor a strict emissions trading system, while countries such as Poland are calling for relaxations.

Outlook: Negotiations and ETS-2

Unused certificates are held in a kind of storage facility, the Market Stability Reserve (MSR). This is intended to reduce supply on the market when many certificates are in circulation. If there is a shortage, emission certificates are released from the reserve onto the market. This is intended to cushion excessive price jumps. A change to the rules of the Market Stability Reserve is also likely to be proposed, as well as the integration of CO2 removals, i.e. processes that extract and store CO2 from the atmosphere.

From 2028, fuels such as gasoline and natural gas are also to be included in a second EU system (ETS2). In 2028, a second system, ETS-2, is to be launched for buildings and road transport. The price of certificates will then indirectly influence the costs of heating oil, natural gas, diesel, or gasoline. The proposals will then go into negotiations in the Council of the 27 states and in the European Parliament.