Germany backs EU ETS overhaul and says Commission proposal aligns with Berlin's reform ideas
Berlin's support accelerates the reform push but does not resolve whether the package risks persistent allowance surplus through 2040.
Senior MEP Peter Liese declared on Friday (2026-07-17) that the EU emissions trading system would survive its proposed reforms and continue to deliver a clear carbon price signal, a statement that arrived as Germany formally backed the Commission's overhaul and said the proposal aligns with what Berlin had been pushing for.6
Berlin's alignment carries weight in Brussels. ETS permits cover roughly 40% of EU greenhouse gas emissions across aviation, heavy industry, and energy — sectors where Germany is disproportionately exposed. Germany relies on gas for about 25% of its energy consumption, industrial applications accounting for a substantial share, which makes carbon price trajectory central to manufacturing cost planning across Europe's largest economy.4
RWE chief executive Markus Krebber set out the industrial imperative in May (2026-05-21). Some parts of Germany's industrial sector face failure without ETS reform, he said, while arguing Berlin should continue decarbonising. Since then, the Commission has tabled its formal proposal, moving the debate from whether to reform to what the reforms should contain.1
German energy economists reinforced that push on Thursday (2026-06-25). A group of four, published by a think tank, urged Berlin to treat the looming ETS reform as its priority rather than loosening domestic climate targets. Weakening national ambitions would backfire, they concluded; getting the European carbon market's architecture right is where Germany should direct its effort. Germany's subsequent endorsement of the Commission's package reflects that logic.5
But Berlin's support does not settle the most consequential dispute inside the proposal. Research group Oeko Institut warned in May (2026-05-21) that the Commission's draft could generate persistent allowance oversupply through 2040, with permits made available well beyond what decarbonisation trajectories require. The warning remains live: the reform has not concluded, and the market stability reserve mechanism is among the contested provisions. Sustained surplus would push ICE EUA Dec-rolling prices lower, weakening the economics of gas-over-coal switching across European power markets.2
Free permit allocations add a further supply variable. As Reuters reported in June (2026-06-19), heavy industry organisations were lobbying for a substantial increase in free carbon allowances under the reform. If granted, that change would expand the pool of permits in circulation and compound the oversupply pressure the Oeko Institut identified. Increasing free allocations while trying to shore up long-term ETS price credibility pulls in opposite directions.4
Liese's position on Friday (2026-07-17) was direct: the proposed reforms preserve a meaningful price signal. Whether the market stability reserve provisions are strong enough to absorb any allowance surplus and prevent a repeat of the price collapse that damaged ETS credibility after 2008 is where carbon market participants are focused.6
The broader EU policy direction provides context. On July 2nd (2026-07-02) the Commission proposed a 90% greenhouse gas reduction target for 2040, stipulating that three percentage points could be met through external carbon dioxide removal purchases, a signal of awareness of the political difficulty of deeper domestic abatement. On Friday (2026-07-25) the EU moved toward delaying its methane rules under energy security pressure, Oilprice.com reported, a pattern suggesting the Commission is sensitive to the industrial competitiveness arguments Germany has advanced.3,7
Carbon border adjustment has been trimmed in parallel. The Commission said excluding shipments under 50 tonnes removes 90% of previously obligated firms from compliance requirements while still covering 99% of targeted emissions, changes the Economist noted in May (2026-05-17). Germany, as the EU's largest goods exporter, has a particular stake in how the CBAM shapes trade-exposed sectors that otherwise face a compounded carbon cost burden.3
The stability reserve trigger levels in the final legislative text carry the most weight for carbon pricing. If left loose, the Oeko Institut's 2040 oversupply scenario becomes the more probable outcome, and ICE EUA Dec-rolling forward pricing would need to adjust. Germany has backed the framework; what the legislative text actually delivers on supply management is still in play.2,6