For Climate Action Network (CAN) Europe, the EU Emissions Trading System (ETS) must remain the cornerstone of EU climate and industrial policy. This is not only a climate imperative, but a matter of economic resilience and energy security. Europe still spends nearly €400 billion each year on fossil fuel imports, exposing its economy to geopolitical risks, price volatility and supply disruptions. Recent events have once again shown how quickly these vulnerabilities translate into real economic costs. Reducing this dependence requires accelerating the transition to clean, domestic energy and industrial transformation.
A strong and credible carbon pricing mechanism is central to this effort. From 2026 to 2030, it is expected to generate between €120 and €150 billion in revenues, offering a unique opportunity to finance Europe’s industrial transformation, invest in clean technologies and infrastructure, and support households and workers through the transition. At a time of intensifying global competition for the clean industry, weakening the ETS would undermine investment certainty and risk pushing clean industrial projects outside the EU.
The upcoming ETS review is therefore a critical moment to strengthen and not dilute the system, ensuring it delivers rapid decarbonisation while supporting prosperity and resilience. CAN Europe’s priorities for the next review:
- The current cap trajectory and linear reduction factor should be preserved at least until 2036, providing the predictability needed for immediate long-term investments. Discussions about additional flexibility should concern only the period thereafter, when limited liquidity risks might need to be addressed.
- Second, the phase-out of free allocations must continue. In 2024 alone, free allocation still represented more than €30 billion in forgone auction revenues, while also weakening the carbon price signal for industry. Maintaining generous free allowances would only delay investment in cleaner production and undermine the effectiveness of the ETS. Conditionalities attached to any remaining free allocations should be strengthened in order to force additional investments in industrial transformation and deep emission cuts.
- Third, ETS revenues must be used strategically. Auction revenues should support in the first place a just transition for citizens, while also speeding up the transformation of European industry. This means investing in clean industrial technologies, infrastructure and deployment of renewables, while also helping households and workers cope with the costs of the transition, both within Europe and internationally. Within Europe, there is also a need to continue allocating revenues specifically to those regions where transition costs are higher.
- Finally, the integrity of the ETS must be protected. International credits and carbon removals should remain outside the system. Introducing them into the ETS would weaken the carbon price, reduce incentives for real emission cuts in European industry and risk undermining confidence in the system.
ETS2 for road transport and buildings must remain outside the scope of this review and off the negotiating table until its scheduled 2028 revision.
For more information:
Greg Van Elsen, Senior Industrial Policy Coordinator, greg.van.elsen@caneurope.org