The European Union Emissions Trading System (EU ETS) remains one of the most effective carbon markets in the world. It is driving emissions reductions, albeit at a somewhat slower pace. Specifically, in 2025, CO2 emissions within the ETS fell by 1.3%. However, the system now faces new strategic challenges beyond decarbonization: maintaining industrial competitiveness and finally providing businesses with long-term predictability.
This is evidenced by data from a report by the ERCST (European Roundtable on Climate Change and Sustainable Transition).
Competitiveness — at the center of discussions
Decarbonization ambitions have jeopardized the viability of European business. According to ERCST, key industry indicators already confirm that an “industrial crisis” is no exaggeration.
The fundamental threat is financial. Emissions prices are constantly rising, while the number of free allowances is shrinking. What has this already led to?
- Auctions have an extremely high impact on the energy sector. At the same time, free allowances cover only up to 10% of its emissions.
- For energy-intensive industries, surplus allowances have turned into structural deficits.
- The price that industry pays to comply with climate requirements has exceeded €35 billion for the energy sector and €7.6 billion for energy-intensive industries.
"Although ETS-related costs remain significantly lower than energy costs in most sectors, industrial production trends show increasing pressure from high energy prices, global competition, and carbon costs combined," ERCST analysts emphasize.
The highest prices, unmitigated by the EU ETS
Prices on the European carbon market are significantly higher than within other global carbon markets. In the EU, the average cost per ton of CO2 in 2025 was $85. This is higher than in China, California, South Korea, and New Zealand.
At the same time, ERCST notes that actual carbon costs must be taken into account, not just their visible portion. Even after the allocation of free allowances and compensation, European industry’s costs remain among the highest in the world.
The Carbon Border Adjustment Mechanism (CBAM) is intended to protect EU industry from unfair competition. However, it simultaneously leads to a reduction in free allowances. Without government support and a reduction in technological costs, this does nothing to promote decarbonization.
The need for reforms
Although the European ETS is the most effective, it must live up to its new role as the driver of the EU’s industrial transformation.
To do this, the EU ETS needs reforms, and according to the ERCST, these reforms must balance emissions reductions, maintaining industrial competitiveness, and ensuring long-term regulatory predictability. Only then will European industry not lose its competitive edge, and environmental measures will receive the necessary investments.
In recent months, criticism of the European ETS has intensified significantly, especially against the backdrop of the war in the Middle East, which has led to higher energy prices. EcoPolitics has analyzed in detail the positions of the parties calling for the ETS to be preserved or overhauled. In Poland, in particular, the EU’s climate policy is being called utter “madness.”
The European Commission has already announced that it will update the ETS framework in July. Earlier, European Commission President Ursula von der Leyen announced four targeted measures designed to reduce the burden on industry.
