EU Emissions Trading: The Price of Uncertainty

In the current debate on the reform of the EU Emissions Trading System, calls for short-term relief for industry are growing louder. But politicians should tread lightly here: anyone who weakens the EU ETS in order to support short-term margins risks undermining the stability of the entire EU Emissions Trading System. So writes Dr. Lukas Hermwille, Co-Head of the Research Unit Transformative Industrial Policy at the Wuppertal Institute, in a recent article published in "VIK-Mitteilungen", the official journal of the German Association of Industrial Energy Consumers (abbreviated VIK, per its German name).

Hermwille argues that a reform designed merely to alleviate immediate price pressure falls short – and could undermine the long-term credibility of the entire system. In his article "The Price of Uncertainty: Even cosmetic reforms to emissions trading can jeopardise the stability of the European climate protection architecture", he sets out three key arguments:

1. The CO2 price is largely based on confidence in the scarcity of CO2 allowances. If policymakers undermine this framework, they erode the basis on which industry pioneers base their calculations. Political dithering can thus become a significant barrier to investment.
2. It is not that industry lacks the funds in many cases – see the massive share buyback programmes of some big corporations. Instead, there is a lack of options for future-proof investments in Europe. Weakening the EU ETS does not solve this structural problem, but it rather exacerbates the uncertainty about which rules will apply to emissions trading tomorrow.
3. Should emissions trading fail as a key market-based instrument due to a lack of credibility, politicians would, following the German Federal Constitutional Court’s climate ruling, have no choice but to resort to other, mostly less efficient regulatory instruments. Ultimately, this would prove far more costly for Europe as an industrial location.

Calls for reform of the EU ETS sent stock prices of climate neutrality pioneers plummeting

Hermwille illustrates his theses with a concrete example: when German Chancellor Friedrich Merz questioned the European Emissions Trading Scheme at an industry summit in Antwerp in February 2026, the markets reacted immediately: The very next day, not only did the prices of CO₂ allowances drop sharply, but so did also the share prices of companies such as Salzgitter and Heidelberg Materials – two pioneering companies that have already invested billions in converting their production processes to climate neutrality. This was despite the fact that Merz’s statements had no immediate impact on the fundamentals of emissions trading.

"We do not need reforms that merely alleviate the pressure in the short term, but rather such reforms that strengthen the medium- to long-term investment outlook: only a stable and credible emissions trading system offers the reliable framework that industry needs for the transition to climate neutrality," the scientist concluded.

The article "The Price of Uncertainty: Even cosmetic reforms to emissions trading can jeopardize the structural integrity of Europe’s climate policy architecture" can be downloaded free of charge via the links below, both in the original German version and as an English translation.