With its proposal of 17 July 2026 to revise the European Union Emissions Trading System (EU ETS1), the European Commission has proposed extensive changes to the existing system for the period after 2030. At the heart of the proposal are adjustments to the emissions reduction pathway (LRF), the introduction of conditionalities for free allocation, the integration of permanent CO₂ removals, the use of international carbon credits, and modifications to the Market Stability Reserve. In addition, free allocation for sectors covered by the Carbon Border Adjustment Mechanism (CBAM) would be phased out more slowly than currently envisaged. Furthermore, the Commission proposes a partial extension of the ETS to aviation and maritime transport, as well as the inclusion of waste incineration, thereby broadening the scope of the system in several areas.

The BDI welcomes the Commission’s intention to maintain the ETS as the central market-based instrument for achieving climate objectives beyond 2030. At the same time, we see several shortcomings in the Commission’s proposal. The success of the ETS as a driver of industrial decarbonisation depends critically on whether the conditions needed for industrial transformation are actually in place. These include, in particular, a robust hydrogen and CO₂ infrastructure, renewable electricity at competitive prices, and functioning markets for climate neutral products. In many ETS covered sectors, these prerequisites are not available yet.

Against this background, the BDI opposes additional conditionalities for free allocation proposed by the Commission. Free allocation serves the sole purpose of protecting against carbon leakage and compensating companies for CO₂-costs that international competitors outside Europe do not face. Conditionalities can therefore not function as an investment instrument and substitute for missing economic or infrastructural framework conditions. Additional requirements would weaken carbon leakage protection without addressing the underlying causes of insufficient transformation investments.

One of BDI’s key priorities is safeguarding the international competitiveness of German industry. To date, no effective solution exists for exports from the EU to third country markets. European companies are required to bear the costs of the EU ETS1 while competing internationally with producers from countries that do not face a comparable carbon price. This creates significant competitive disadvantages. BDI therefore proposes a dedicated export solution to close this regulatory gap and preserve the international competitiveness of European manufacturers.

As effective carbon leakage protection continues to require a sufficient volume of freely allocated allowances, we also advocate adjusting the balance between auctioning and free allocation. Specifically, we propose lowering the minimum share of allowances that must be auctioned, thereby increasing the volume available for free allocation accordingly, including to provide allowances for an export solution. Only in this way can both a realistic benchmark design and effective carbon leakage protection be ensured. We also see potential in the use of international emissions reduction credits to strengthen Europe’s competitiveness in third countries while providing for cost-effective decarbonisation options. Without introducing additional requirements for such credits, preference should be given to emissions reduction projects implemented with European technology.

The coming months will be decisive for shaping the European emissions trading system after 2030. BDI is committed to ensuring that the ETS supports both climate protection and industrial competitiveness. The decarbonisation of industry can only succeed if climate policy ambitions and economic realities are brought into alignment.