The European industry faces a huge challenge: it must become climate neutral as quickly as possible while competing in an increasingly fierce global market. Currently, no instrument reflects this balancing act better than the European Emissions Trading System (EU ETS).

With the reform announced for July 17, 2026, the EU Commission intends to set the course for the next phase of European climate policy – an enormous challenge amidst high energy prices, trade policy turbulence, and growing concerns about Europe's industrial base. The ETS is designed to help reduce EU greenhouse gas emissions by 90 percent by 2040 compared to 1990 levels. For companies, this is not just about progress in reducing harmful emissions. The reform will also determine how attractive the conditions for investment, innovation, and industrial value creation in Europe will be in the future.

Emissions trading as a market-based and effective policy instrument

The EU ETS relies on a simple market-oriented mechanism: Companies in ETS-covered sectors must acquire and submit emission certificates for each ton of CO₂ discharged. This creates a financial incentive to avoid greenhouse gas emissions where it is most cost-effective. Companies investing in climate-friendly technologies can reduce their CO₂ costs.

The record shows that this approach works: Between 2005 and 2023, emissions within ETS sectors – primarily electricity and heat generation as well as industrial manufacturing – were reduced by approximately 47 percent, according to EU data. Thus, emissions trading has been more successful than the sectors targeted by the EU "Effort Sharing Regulation" (transport, buildings, and land-use), which forms the second pillar of EU climate policy, giving reduction targets for additional industries not covered by ETS. Emissions trading results outperform reductions in sectors such as transport, buildings, and land-use, which saw emissions drop by only 38 percent over the same period.

From the perspective of the German Chamber of Commerce and Industry (DIHK), a reformed emissions trading scheme should remain the flagship instrument of European climate and energy policy going forward. Compared to detailed individual mandates, it offers companies more flexibility, encourages innovation, and facilitates cost-efficient climate protection. The DIHK study "New Paths for the Energy Transition ('Plan B')" demonstrates that a cross-sectoral emissions trading approach which is open to technology has the potential to reduce overall transformation costs significantly: By 2050, savings between 530 and 910 billion euros could be achieved, representing a reduction of 11 to 17 percent, if bureaucracy is simultaneously eliminated.

Combining competitiveness with transformation

To enable emissions trading to achieve its steering effect, the DIHK advocates several key reforms outlined in a detailed policy paper:

1. Realistic reduction path: The future reduction trajectory must be technically and economically feasible. Even after 2039, sufficient certificates must remain available for unavoidable residual emissions – particularly in energy-intensive industries where process emissions cannot be entirely avoided long-term.
2. Integrating CO₂ removals into the ETS: The EU has already established a framework for certifying CO₂ extractions through the CRCF regulation (Carbon Removals and Carbon Farming Regulation). This basis should be utilized to directly link certified extractions with emissions trading. Doing so would encourage investments in natural or technical technologies for carbon removal and storage, opening additional transformation options for industries that are hard to decarbonize. The European Commission estimates this could unlock a potential of 222 to 450 million tons of CO₂ equivalents by 2040.
3. Using climate credits: International climate credits should become usable. The European Climate Law already allows up to five percent of the 2040 climate target to be achieved through international climate protection measures. ETS companies should also benefit from this flexibility. This would enable global emissions reductions where they're most cost-efficient and promote worldwide climate action, as illustrated in a recent analysis by the Potsdam Institute for Climate Impact Research.
4. Infrastructure as a prerequisite: ETS requirements and infrastructure development must align. Availability and access to electricity networks, hydrogen infrastructure, as well as transportation and storage solutions for CO₂ are fundamental to enabling companies to successfully invest and transform their production. Without infrastructure, operational climate neutrality cannot be achieved.
5. Using revenues for transformation: Moreover, ETS revenues should increasingly support industrial decarbonization and the expansion of required energy and CO₂ infrastructure. Since 2013, the ETS has generated approximately 245 billion euros in revenue across the EU. According to European Commission estimates, only around five percent of this has so far been directed toward industrial decarbonization measures – including CCUS (Carbon Capture, Utilization and Storage), hydrogen usage, or commercial energy efficiency efforts.
6. Preventing carbon leakage: Finally, effective measures against carbon leakage, i.e., relocation of production and emissions to countries with less stringent climate protection standards, must remain intact. Free allocation of certificates and electricity price compensation should only expire once the CO₂ Border Adjustment Mechanism (CBAM) has proven functional and offers equivalent protection against competitive disadvantages.

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The comprehensive policy paper is available here in a non-accessible version: 

Klima_DIHK-Impulspapier ETS-Reform (only available in German)