Europe’s largest business lobby, BusinessEurope, is calling for targeted reforms to the multi billion euro carbon market, arguing that the current trajectory risks accelerating deindustrialization at a time when energy costs and global competition are already straining manufacturers.
The ETS remains the European Union’s central tool for pricing carbon, covering power generation and energy intensive industries by attaching a cost to each ton of CO2 emitted. Yet according to BusinessEurope, the cumulative burden has become increasingly difficult to absorb. The group, which represents 42 national business federations, warns that carbon costs can account for up to 30 percent of total energy expenses for some industrial players, a level it considers incompatible with maintaining globally competitive production in Europe.
At the core of the lobby’s proposal is a recalibration rather than a dismantling of the system. BusinessEurope supports retaining the ETS but argues that the pace of emissions reductions embedded in the current cap trajectory should be reconsidered. One concrete measure under discussion is releasing additional allowances from the market stability reserve to inject liquidity and temper price volatility. The reserve was designed to smooth supply imbalances, but critics say its current configuration can amplify cost pressures during periods of tight energy markets.
The group is also urging policymakers to slow or rethink the planned phaseout of free emissions allowances for heavy industry and power producers. These allowances have long been justified as a safeguard against carbon leakage, where production relocates to regions with looser climate rules. Removing them too quickly, BusinessEurope argues, risks pushing capital and jobs out of the EU before low carbon alternatives are commercially and infrastructally viable at scale.
These demands land just as the European Commission prepares a formal review of the ETS later this year. That review was always expected to be politically sensitive, but pressure has intensified following a recent industry summit in Antwerp, where several CEOs and German Chancellor Friedrich Merz openly called for changes to protect Europe’s industrial base. The convergence of business and political voices has made it harder for Brussels to treat ETS reform as a purely technical adjustment.
Critics of any dilution argue that weakening the carbon market would undermine both climate credibility and investment signals. Since 2013, ETS auctions have generated around €245 billion in revenue, funding national budgets and channeling capital into decarbonization. A significant share flows into the EU’s €40 billion Innovation Fund, which supports technologies aimed at cutting emissions in sectors such as steel, cement, and chemicals. Reducing scarcity or slowing the cap could shrink this revenue stream just as capital intensive transitions enter their most expensive phase.
BusinessEurope counters that the issue is not whether ETS revenues should support decarbonization, but how effectively they are recycled. The group is calling for a broader remit that more directly links carbon market proceeds to industrial transformation, rather than relying on indirect or uneven national allocations. From this perspective, reforming the ETS is framed as a way to preserve political and economic support for climate policy, not to abandon it.
The tension highlights a structural challenge facing the EU’s climate architecture. A carbon price strong enough to drive emissions cuts also raises input costs for industries competing in global markets without comparable carbon constraints. As allowance prices fluctuate and energy systems remain exposed to geopolitical and weather related shocks, the ETS is increasingly judged not only on environmental outcomes but on its ability to coexist with industrial policy.
