Europe’s carbon pricing rules in the firing line

Political leaders and corporates take aim at EU ETS, while steel giant praises changes to Carbon Border Adjustment Mechanism 

Companies have stepped up their fight against the EU’s carbon pricing regime this week, arguing it makes it harder for them to compete on the global stage. 

On Tuesday, the CEO of German chemicals firm BASF described the EU’s flagship Emissions Trading System (ETS) as “obsolete”.  

In an interview with the Financial Times, Markus Kamieth, who was also recently appointed president of Cefic, the trade association for Europe’s chemicals industry, said the ETS put firms at a “significant competitive disadvantage” against overseas peers.     

A day later, at the European industry summit in Antwerp, CEOs urged policymakers to tackle “persistently high energy and carbon costs”, which they said were “unique to Europe” and designed to continue to further increase over the coming decade.  

At the same event, German Chancellor Friedrich Merz said the ETS was meant to cut emissions whilst enabling companies to establish greener ways of doing business. 

“So if this is not achievable, and if this is not the right instrument, we should be very open to revising it, or at least to postpone it,” he suggested in his remarks to the audience.  

French president Emmanuel Macron argued that “high energy prices, combined with carbon costs, are accelerating deindustrialisation and not decarbonisation.”

The prime ministers of Belgium and the Czech Republic made similar interventions on Wednesday, calling for the EU ETS to be reined in. 

European Commission heads pushed back against the criticism, with climate commissioner Wopke Hoekstra writing on social media that it was “intellectually lazy to bash the EU Emissions Trading System”.   

He said it was “as effective as it can be” and that “many companies received substantial amounts of free allowances which should have been a trigger for investing in decarbonisation”.  

Commission president Ursula von der Leyen insisted that the ETS had been effective, pointing to a 39% drop in emissions since its 2005 introduction, whilst in-scope sectors had managed to grow by 71% over the same period. 

She told companies that “the next step is now to channel more resources from our ETS into your industries” – in part through the EU’s new €100bn Industrial Decarbonisation Bank, which will conclude its first ‘pilot auction’ next week. 

Von der Leyen noted that, while 100% of EU-level revenues from the ETS have been ploughed into industrial decarbonisation efforts in the region, Member States “invest less than 5%” of their portion into such projects. 

She said she would raise this with national leaders this week, and make it a “core focus” of upcoming reforms to the ETS. 

The Commission is scheduled to make its formal proposal for updating the regime in July.  

On Monday, Reuters reported that some policymakers are considering taking a less aggressive approach to the phase-out of free allowances, which you can read more about in this explainer.    

The price of allowances has plunged this week as a result of the statements. 

Institut Montaigne warned this week that extending free allowances could “unravel” the regime.  

In a paper published on Tuesday, the French think-tank examined three possible outcomes of the ETS revisions.  

It found that most non-EU carbon markets “deliberately shield domestic industry through low prices, free allocation, or limited scope” creating “a real competitiveness risk for EU industry, compounded by structurally higher European energy costs”.  

This week also saw steel giant ArcelorMittal praise the EU for its recent reform of the Carbon Border Adjustment Mechanism (CBAM), which it said had enabled it to commit €1.3bn to a new electric arc furnace in France.   

The firm said the Commission’s decision in December to tweak CBAM to close loopholes it had identified had helped “give us the confidence to now confirm this investment”. 

The introduction of broader steel import tariffs, and a recent power purchase agreement with EDF had also enabled the deal, it said.