Germany Throws Weight Behind EU ETS Overhaul, Backing Carbon Market Restructuring
Berlin's endorsement removes a significant political obstacle for the Commission's reform, though researchers warn the changes could flood the market with surplus allowances through 2040.
Germany has endorsed the European Commission's proposed overhaul of the EU emissions trading system, saying the reform package aligns with Berlin's own position on how the bloc's carbon market should be restructured for the decade ahead. The announcement came as senior MEP Peter Liese said on Friday (2026-07-17) that the ETS would survive the proposed changes and continue to deliver a clear price signal, calling it "a good day for the climate, [EU] competitiveness."6
As the EU's largest economy, Germany's position in Council negotiations carries weight that smaller member states cannot match. Its endorsement removes one of the reform's more credible blocking options and signals that the package is likely to advance through the co-legislative process.5,1
The ETS currently covers roughly 40% of EU greenhouse gas emissions, placing caps on carbon-intensive sectors including aviation, heavy industry and energy generation, edie.net reported. Germany relies on gas for around 25% of its energy consumption, particularly for industrial use, making carbon pricing one of the most direct levers on manufacturing competitiveness.4
The reform's most commercially significant element for German industry is an expansion of free carbon allowances. As reported by Reuters and cited by edie.net, heavy industry organisations could access wider free permit allocations under the revised system. Alongside that, the Commission has streamlined the Carbon Border Adjustment Mechanism: excluding shipments under 50 tonnes means 90% of firms previously subject to CBAM will no longer be required to participate, though the Commission says 99% of the targeted emissions remain within scope.4,3
But researchers have raised a pointed objection. Oeko Institut warned in May (2026-05-21) that the proposed reforms carry a "major risk" of renewed oversupply, with carbon allowances potentially exceeding genuine abatement needs all the way to 2040, Montel reported. Persistent surplus allowances would drag on ICE EUA Dec-rolling contract prices, weakening the investment signal the scheme exists to send.2
German industry had been pressing hard for action well before Berlin's formal endorsement. RWE CEO Markus Krebber said on Thursday (2026-05-21) that parts of Germany's industrial sector face failure without ETS reform, while maintaining that the country should continue decarbonising. His framing — that competitiveness and decarbonisation need not conflict — has become the standard position among German energy majors navigating carbon policy.1
German economists stepped in with a sharper directive on Thursday (2026-06-25). A group of four energy economists, writing through a think tank, urged Berlin not to weaken domestic climate targets as a shortcut to relieving industrial pressure — a route some in industry have lobbied for — and to concentrate instead on the EU ETS overhaul, Montel reported. Loosening national targets would backfire, they argued.5
The Commission's 2040 emissions-reduction target, proposed on July 2nd (2026-07-02), stands at 90% — described at the time as ambitious — with three percentage points permitted to be achieved via carbon-dioxide removal rather than direct abatement, according to The Economist.3
For carbon traders, the key design variable is whether the free allowance expansion embedded in the reform will prove large enough to suppress ICE EUA Dec-rolling prices for years. Germany's political support accelerates the legislative process. But if the design concessions to industry are as generous as Oeko Institut's analysis implies, the first confirmation will arrive in forward EUA curves — and it will be considerably harder to unwind once the reform is law.2,3