CLARIFICATION: German industry urges debate about planned tightening of EU emissions allowance allocations

[15.10.25: EDITED to clarify that free allowances for energy-intensive industries run out step-by-step from 2026 to 2034] 

Industry representatives in Germany have urged a debate on the planned tightening of EU emissions trading rules, arguing that the changes could undermine the bloc’s competitiveness, newspaper Süddeutsche Zeitung reported. The planned reform of the EU emissions trading system (ETS) - which puts an annual cap on how much CO2 industry can emit - would mean that “nobody will sell emissions allowances any more, everyone will be desperately looking for them,” said Markus Kamieth, head of chemicals producer BASF at a conference by lobby group Federation of German Industries (BDI). Without amendments, European industry would be headed for “a major problem”, Kamieth argued. He added that “the debate must start” on whether the reforms can go ahead as currently envisaged.

Under the ETS, some emitters receive freely allocated emissions allowances to trade and make pollution cuts more efficient. The EU plans to phase out free allowance allocations from 2026 (no more free allowances by 2034) and completely cease to issue new allowances in the ETS by around 2039. Companies could therefore start hoarding allowances well in advance, which would lead to significant price increases. The EU’s Carbon Border Adjustment Mechanism (CBAM) - which adds the same CO2 costs to products manufactured abroad when they cross the EU border, scheduled to take effect by 2026 - would likely do little to protect European companies, Kamieth said. He added that it was unlikely that imported products would come with adequate reporting of their carbon footprint.

Chemicals producer Lanxess also voiced concerns regarding the ETS’s transformation, arguing that free allowances should be made available for as long as companies in Asia and America do not incur similar costs for emitting carbon dioxide. Otherwise, the company warned, there would be a chance of "further massive damaging of our already eroding competitiveness in Europe". Dennis Grimm, head of steelmaker Thyssenkrupp, warned that prices for CO2 emissions “must not rise faster than the transformation can be implemented”. This would be necessary to ensure that companies remain in business and climate-friendly technologies can take hold, Grimm argued.

Germany’s environment ministry (BMUKN) told the newspaper that it currently was unlikely for some industry branches, including chemistry and steel, to cope without new emissions allowances by 2040. Minister Carsten Schneider in the past week said in parliament that ending allocations in 2039 would be “too early”. 

Climate researchers such as Ottmar Edenhofer, head of the Potsdam Institute for Climate Impact Research (PIK), warn against watering down the planned ETS reforms. Companies could prepare for post-2039 by buying allowances in advance, while residual emissions should be covered by carbon removal measures. “Instead of questioning the timetable and the climate targets, we need a binding framework for negative emissions in the ETS,” Edenhofer said.

Industry leaders in Germany support the transition to climate neutrality, but insist on substantial financial and regulatory support.