On 20 October, the ETS Talks series held the session “EU ETS at a Crossroads: Trends, Challenges and the Way Forward”. The EU Emissions Trading System, which makes companies pay for their CO₂ emissions, has cut emissions in the sectors it covers by about half in twenty years. But in 2025, progress nearly stopped. . 

THE SESSION

The one-hour webinar combined two presentations with a moderated discussion and audience questions. Nikos Mantzaris, from The Green Tank, looked back at the data, presenting the think tank’s report “Trends in the Emissions Trading System in the EU & Greece, 2005–2025”. Boris Jankowiak, from CAN Europe, looked ahead, setting out how the review could turn the ETS into a tool for industrial investment.

The backdrop, as Nikos put it at the start, is a review taking place in a political climate that is far from friendly to climate ambition, with a real risk of rolling back progress.

TWENTY YEARS OF DATA

In 2025, the four ETS sectors emitted about 1.13 billion tonnes of CO₂: 51.7 % less than in 2005, but only 1.7 % less than in 2024. Nikos’s verdict: the ETS works, but it is slowing down.

The picture varies widely by sector. Combustion, the largest at around 567 Mt, has cut emissions by 54.2 % since 2005 but barely moved in 2025 (−0.16 %). Industry, at around 422 Mt, is down only 19.2 % since 2005; its 2.6 % drop in 2025 was partly due to lower output. Maritime transport, in the ETS since 2024, stayed at around 83 Mt, although reporting gaps remain. Aviation held stable at around 60 Mt, but the ETS only covers flights within the European Economic Area.

The gains in power came mostly from coal leaving the mix, especially after carbon prices rose from 2018. Even so, coal emitted 263 Mt in 2025: 46 % of combustion emissions from just 9 % of EU electricity. Germany and Poland account for almost three quarters of it, and Poland’s Bełchatów plant alone still emitted over 25 Mt. The Netherlands bucked the trend, as tripled electricity exports pushed coal use up.

From 2005 to 2016, industry received more free allowances than it emitted. Between 2021 and 2025 it received 2,184 million free allowances against 2,245 Mt of verified emissions, worth about €154 billion at market prices. Nikos also cited a CE Delft study estimating windfall profits of up to €50 billion in 2008–2019. Even 2025’s biggest cut, −2.8 Mt (−10 %) in German iron and steel, mirrored a 9 % drop in production rather than cleaner processes. Refining, the largest industrial emitter, cut just 1.1 %.

Every member state cut emissions since 2005; Portugal, Denmark and Romania led with reductions of around 70%, while Cyprus trailed at 14.7%. Seven countries increased emissions in 2025. In shipping, Greece is the largest emitter at 15.4 Mt, and Nikos criticised Greece and Cyprus for being the only EU states not to back the IMO Net-Zero Framework, which fell three votes short.

FROM CARBON PRICE TO INVESTMENT

Boris built on Nikos’s numbers with one central question: how can the review make the ETS trigger real investment in clean industrial capacity, instead of emission cuts that come from closing factories?

He argued that free allocation, which still covers about 97 % of industrial ETS emissions, has left industry facing a very low effective carbon price. Meanwhile, the industrial investment rate fell from 18.4 % in 2010 to 14.9 % in 2023, even as many plants are ageing and need renewal anyway.

There is a pipeline of low-carbon projects, especially in steel, where Europe still leads. But about 90 % of these projects have not yet reached a final investment decision. In the last six months, China secured 12 or 13 such decisions in steel; Europe secured three. Boris also cited a Steel Watch analysis: ArcelorMittal received around €15 billion in free allocation in 2021–2025, but invested only about 5 % of that amount in decarbonising its coal-based capacity.

The risk now, he said, is no longer carbon leakage but “decarbonisation leakage”: green investment moving to regions with clearer policy direction. Since industrial processes take 15 to 20 years to transform, investors need long-term predictability.

For the review, Boris’s first priority is to keep the cap tight by maintaining a high linear reduction factor, noting that the ETS1 market faces no shortage of allowances before at least 2036. Protecting the system’s integrity also means leaving out international credits, not adding removals on top of the cap, and letting the Market Stability Reserve remove allowances when the market is oversupplied.

Free allocation, he said, should be phased out as soon as possible, with tighter benchmarks, and any that remains should depend on real investment plans. The Commission estimates this conditionality could unlock up to €140 billion in 2031–2040. The money matters too: free allocation costs €30–40 billion a year in forgone revenue, while ETS revenues have totalled €270 billion since 2013, and member states should be more transparent about how they spend them.

He also framed the ETS as a security issue: the EU imports about €400 billion of fossil fuels a year, and around 82 % of ETS emissions come from burning them.

WHERE THE NEGOTIATIONS STAND

The Commission’s July proposal weakens the carbon price signal in several ways, Boris said, and the co-legislators are split on whether to fix it.

The Commission proposes slowing the annual cap reduction from 4.4 % to 3.7 %, adding international credits and removals on top of the cap, and pushing the end of free allocation from 2034 to 2038, while tying it to conditionality. The European Parliament is divided: its lead negotiator wants an even slower cap reduction, while other groups aim to close loopholes, limit credits and removals, and keep conditionality. The Council, for its part, is seeking more flexibility for industry and resists conditionality as too burdensome.

Parliament votes are expected in December, with trilogue negotiations starting in January and a deal targeted for early next year.