Not least under pressure from the German chemical industry, the EU Commission intends to weaken the European Emissions Trading System (ETS) and thus lower the CO2 price for fossil power companies and industry. In a first step, it proposes to change the rules for the so-called Market Stability Reserve, thereby leaving room in the coming years for higher CO2 emissions.
The ETS is the central pillar of the EU climate protection architecture. Companies from the industry and the energy sector must buy certificates in order to emit CO2. The number of these allowances is gradually reduced in line with European climate goals, so that companies have to pay more and more as they emit CO2. This is intended to push them to invest in climate-friendly technologies.
Because for years a huge amount of CO2 certificates circulated on the market unused, a large surplus of emission rights built up in the 2010s. This surplus is collected in the Market Stability Reserve and automatically reintroduced to the market when the number of certificates is low.
At the beginning of the year, however, since 2024 all CO2 certificates above the threshold of 400 million are retired. In total this has already prevented potential emissions of about 3 billion tonnes of CO2 — somewhat less than the EU’s annual CO2 emissions.
The Chemical Lobby Welcomes the Proposal
This clearing of certificates above the threshold is something the EU Commission now wants to end – also in order to lower the CO2 price and thus make fossil oil and gas cheaper, which are becoming more expensive on world markets due to the Iran war.
“By strengthening the Market Stability Reserve, we improve the resilience of the Emissions Trading System to fluctuations and ensure that it advances decarbonisation, supports competitiveness and promotes clean investment,” said EU Climate Commissioner Wopke Hoekstra at the presentation of the Commission’s proposal.
The German chemical lobby association VCI welcomes the proposal: “We have the impression that the Commission has recognized the fundamental problem in the design of the Emissions Trading System,” said chief executive Wolfgang Große Entrup. Boards of major German chemical groups such as BASF and Evonik have been opposing the ETS for months. Evonik CEO Christian Kullmann even called for abolition or radical reform of the EU’s most important climate protection measure in the autumn.
In the meantime, he has backpedaled vigorously. In an op-ed in the Handelsblatt, Kullmann together with CDU MEP Peter Liese wrote about the ETS: “Some want to abolish it or radically overhaul it. We say we must act pragmatically now and achieve wise compromises.”
Greens: The Problem Is the High Cost of Fossil Gas
Whether the reform of the Market Stability Reserve proposed by the EU Commission is such a smart compromise is at least doubtful, says Green MEP Michael Bloss. “That’s like amputating an arm when someone has a headache,” he said. The industry’s problem is not the high CO2 price, but the high costs of fossil gas.
Bloss fears additional CO2 emissions amounting to one billion tonnes. “Instead of setting the course for the exit from fossil emissions, the Commission is creating a stockpile glut,” he criticized.
The chemical industry, meanwhile, says the Commission’s reform proposals do not go far enough: there is a missing “clear commitment not to tighten the so-called benchmarks,” the VCI announced. These benchmarks are guidelines that determine how many tonnes of CO2 companies may emit free of charge. They are calculated based on the most climate-friendly industrial plants. Those who produce particularly climate-friendly receive more free certificates than dirty factories.
BASF CEO Markus Kamieth urged the EU Commission to postpone tightening of the benchmark standards. And VCI CEO Wolfgang Große Entrup said, “the today’s hesitant announcement must quickly be followed by larger steps with further swift adjustments.” Otherwise investments and value creation will continue to migrate away from Europe.
The European Commission’s proposal for the Market Stability Reserve still has to be approved by the European Parliament and by the EU’s heads of state and government. By July the EC must also issue an assessment of CO2-pricing. Fossil lobby groups hope that the ETS will be weakened further in the course of this assessment. At least speculators consider this likely: the price for a CO2 certificate has been falling steadily for months.
