EU Industry Split Over ETS Reform as Commission Prepares July Package
EU industry groups split publicly on Tuesday (2026-07-01) over how Brussels should reshape the bloc's emissions trading system, with heavy industry and utilities pulling in opposite directions ahead of a European Commission proposal that analysts say could cut carbon prices by as much as 13 percent over the next two years.5
The disagreement has sharpened as lobbying ahead of the Commission's scheduled July package reaches its peak. Heavy industrial users — steel producers, cement groups and chemicals manufacturers — have pushed for structural changes that would reduce compliance costs, citing competitive pressure from producers outside the EU not subject to equivalent carbon pricing. Power utilities and some corporate sustainability officers have urged Brussels to leave the market architecture largely intact, arguing that price stability is a precondition for long-term decarbonisation investment.5
Climate commissioner Wopke Hoekstra said on Wednesday (2026-05-21) that the Commission would pursue "targeted improvements" to the ETS while maintaining "stable long-term signals" — a formulation that reassured traders holding long carbon books but left most industry groups no clearer on the specifics.2
The price sensitivity is quantifiable. A senior analyst at Veyt estimated on Wednesday (2026-05-20) that the adjustment under discussion could cut EU carbon prices by around 13 percent over the next two years, primarily through changes to the Market Stability Reserve. That mechanism currently reduces auction volumes by 24 percent when the total allowance surplus exceeds 833 million tonnes. Any relaxation of that trigger would allow more allowances into circulation, weakening the price floor without requiring any direct change to the annual cap.1
Research group Oeko Institut reached a more alarming conclusion. Its study warned of a "major risk" of persistent oversupply in the EU ETS through 2040 — a timeframe spanning two or three industrial investment cycles. A sustained glut at that scale would erode the carbon price signal precisely when steel plants, petrochemicals groups and heavy transport companies need pricing certainty to commit to low-carbon capital spending.4
The Commission has also simplified the carbon border adjustment mechanism. Excluding consignments under 50 tonnes removes roughly 90 percent of firms originally in scope; Brussels says the remaining participants still account for 99 percent of the emissions the levy was designed to price. Critics argue the threshold reduces competitive pressure on third-country producers to match EU carbon standards, diluting the external dimension of EU climate policy at a time when the ETS is already under internal pressure.3
Both moves fit a broader direction. Since former ECB president Mario Draghi's competitiveness report called on the EU to streamline regulation for large firms, the Commission has moved to limit mandatory climate plans and risk disclosures to the biggest corporates — a pattern running across adjacent regulatory tracks, not just the ETS.3
The market question ahead of the July package is whether the Commission leans toward heavy industry's structural preferences, which would likely push allowance prices lower, or toward Hoekstra's "targeted improvements" framing, which traders have read as a relatively light touch. Veyt's 13-percent estimate gives shape to the near-term downside; Oeko Institut's 2040 surplus scenario maps the longer tail.2,1
If that surplus trajectory is locked in by this year's reform, the Market Stability Reserve may not have enough headroom to correct the imbalance before most heavy-industry decarbonisation investment decisions have already been made.4