On Friday the European Commission presents its review of the Emissions Trading System — the carbon market that has quietly done more to cut European emissions than any other single policy. The review reopens the system's core architecture: the trajectory for phasing out free allowances to energy-intensive industry, the mechanics balancing supply and demand of permits, and protections for sectors like maritime transport that compete globally. Co-decision with Parliament and Council is expected to run into 2027, with implementation targeted for 2028. Which means the fight starting this week will shape European industrial costs for a decade.
The evidence for the system's effectiveness is not seriously contested. Emissions from ETS-covered sectors have fallen roughly 47% since 2005, with the deepest cuts in electricity generation. A new analysis by the Bruegel think tank, "The EU emissions trading system works but most industrial decarbonisation is still to come," captures the review's dilemma in its title: power got cleaner because utilities could switch fuels, but heavy industry — steel, chemicals, cement — has barely started, and now faces the phase-out of the free allowances that shielded it, just as energy-intensive producers warn that carbon costs could push them out of Europe altogether.
Ahead of Friday, the lobbying has gone to head-of-government level. Sweden's Ulf Kristersson and Finland's Petteri Orpo wrote to Commission President Ursula von der Leyen urging her to preserve "the carbon price trajectory," calling it "indispensable to support and mobilise the massive investments needed for the climate transition" and reminding Brussels that "European industries have invested billions on the basis of a solid policy framework." Their letter is aimed squarely at Italy and Poland, the two capitals pushing hardest to soften the system's foundations.
In Germany, an unusual alliance has sketched what a compromise could look like: the environmentalist Öko-Institut and the employer-aligned German Economic Institute (IW) jointly proposed delaying the reduction of free industrial allowances from 2028 to 2033, while extending the issuance of new certificates from 2039 to 2048 — slower relief for industry now, paid for with a longer overall glide path.
Running underneath the design fight is a distributional one. The system generates serious revenue — about €24 billion is currently at stake in a dispute between Brussels and member-state finance ministries over how ETS proceeds are spent. As the carbon price rises and free allocation shrinks, that pot grows, and so does the temptation for national treasuries to treat it as general revenue rather than transition funding.
The ETS review is often framed as climate policy. It is more accurate to read it as industrial policy conducted through a carbon price. Every fault line — free allowances, the price trajectory, the revenue split — is really a question about who pays for European industry's transition and who profits from it. The strongest argument on the table is not for a higher or lower price but for a predictable one: companies that committed billions on the basis of the existing framework, as the Nordic prime ministers note, need to know the rules will not be rewritten every time the political wind shifts. If Friday's proposal trades short-term industrial relief for long-term credibility, Europe may end up with the worst of both — a weaker price signal and no more trust in the framework than before.
