Brussels – Europe’s largest business lobby, BusinessEurope, has called for significant reforms to the European Union’s Emissions Trading System (ETS), arguing the current structure risks deindustrialization and undermines the competitiveness of European industry. The call for revisions comes as the EU prepares to review the carbon market later this year, a system designed to be the cornerstone of the bloc’s climate neutrality goals.
The ETS operates on a ‘cap and trade’ principle, putting a price on each metric ton of carbon dioxide released by industry. While proponents maintain it incentivizes emissions reductions, BusinessEurope contends the rising cost of carbon is becoming unsustainable for businesses already grappling with high energy prices and intense global competition. The lobby group represents 42 national business federations across Europe.
According to Alexandre Affre, BusinessEurope’s deputy director general, carbon costs now account for as much as 30% of overall energy expenses for some companies. You have a situation where carbon costs are up to 30% of energy costs — it’s not negligible,
Affre said in an interview. The risk of deindustrialization, if the problem is not solved, is high.
This sentiment echoes concerns voiced at a recent industry summit in Antwerp, where CEOs and German Chancellor Friedrich Merz also advocated for market reforms.
BusinessEurope’s proposals center on two key areas: increasing liquidity within the market and reconsidering the phasing out of free emissions allowances. The lobby suggests injecting liquidity by releasing permits currently held in the market reserve, a mechanism designed to stabilize carbon prices. The report, seen by Bloomberg, also argues for a slower reduction in the free allowances currently granted to heavy industry and power producers, a measure intended to shield these sectors from the financial burden of the ETS during the transition to a low-carbon economy.
The timing of this push for reform is significant. The European Commission is scheduled to review the ETS later in , providing a crucial opportunity to address the concerns raised by industry. The current system has faced increasing scrutiny in recent weeks, with critics arguing it is exacerbating financial pressures on businesses. The debate highlights the inherent tension between ambitious climate goals and the need to maintain a competitive industrial base in Europe.
The EU’s commitment to climate neutrality by mid-century is enshrined in its European Green Deal, with the ETS playing a central role in achieving this objective. However, the effectiveness of the ETS hinges on striking a balance between environmental ambition and economic viability. The current pressure from BusinessEurope underscores the challenges of implementing such a complex system in a globally competitive environment.
The call for reform isn’t simply about easing the financial burden on industry; it’s about preventing what BusinessEurope describes as a potential exodus of businesses from Europe. The fear is that companies will relocate to regions with less stringent environmental regulations, leading to job losses and a weakening of the European economy. This concern is particularly acute in energy-intensive sectors such as steel, cement and chemicals.
While BusinessEurope maintains its support for the ETS in principle, the organization’s proposals represent a significant challenge to the current trajectory of the carbon market. The debate over the pace of emissions cuts and the role of free allowances is likely to dominate discussions as the European Commission prepares its review. The outcome will have far-reaching implications for the future of European industry and the EU’s ability to meet its climate targets.
The pressure to amend the ETS is not solely coming from BusinessEurope. The growing clamor for adjustments reflects a broader anxiety within the European business community about the escalating costs associated with climate policies. The situation is further complicated by geopolitical factors, including the ongoing energy crisis and the need to secure alternative energy sources. These challenges add to the urgency of finding a sustainable solution that balances environmental protection with economic competitiveness.
The European Commission faces a delicate balancing act. Diluting the ETS too much could undermine its effectiveness in driving down emissions, jeopardizing the EU’s climate goals. However, ignoring the concerns of industry could lead to economic disruption and a loss of competitiveness. The Commission’s review will need to carefully consider these competing priorities to ensure the ETS remains a viable and effective tool for achieving a sustainable future.
The debate also raises questions about the broader international context. As other regions implement their own carbon pricing mechanisms, the EU’s ETS will need to remain competitive to avoid carbon leakage – the phenomenon of businesses relocating to countries with less stringent regulations. This underscores the importance of international cooperation in addressing climate change and ensuring a level playing field for businesses worldwide.
