German steelmaker Thyssenkrupp has raised strong concerns about the future design of the EU Emissions Trading System (EU ETS). In its feedback to the European Commission’s consultation on the upcoming ETS review, the company warned that the current trajectory of the system—marked by a rapidly shrinking emissions cap and the phase-out of free allowances—risks pushing Europe into deindustrialisation rather than decarbonisation. Thyssenkrupp argues that revenues from today’s conventional steel production are crucial to fund tomorrow’s costly investments in low-carbon technologies. Without adjustments, the system could weaken Europe’s global competitiveness at a time when the momentum of the green transition is already slowing.
Takeaways
The company’s core message is that the ETS, while a powerful tool for driving down emissions, must evolve in a way that reflects the real pace of industrial transformation. Thyssenkrupp calls for a slower and non-linear reduction in emission allowances, stretching the timeline out to 2050 rather than effectively reaching zero by 2039. It also insists that free allocations, which are due to be phased out alongside the rollout of the Carbon Border Adjustment Mechanism (CBAM), should remain in place at least until 2040.
This debate highlights a central dilemma in European climate policy. The energy sector has already made deep cuts in emissions thanks to renewables replacing coal, but industry has been far slower to decarbonise. Manufacturing is on course to overtake electricity as Germany’s largest source of CO₂ emissions, and the sector is demanding more supportive conditions: better tax incentives for investment, regulatory clarity, lower energy costs, and improved infrastructure. For heavy industries like steel, these measures could determine whether the EU achieves a managed green transition or risks a hollowing-out of its industrial base.
Key Term Explanation
The EU ETS is the bloc’s flagship cap-and-trade system, which places a limit on greenhouse gas emissions and allows companies to buy or sell allowances depending on their needs. By gradually reducing the total cap, the EU aims to push industry and energy producers towards decarbonisation. To avoid “carbon leakage,” in which companies relocate production abroad to avoid carbon costs, the EU has long provided free allocations of allowances to vulnerable industries. These are now being phased out as the Carbon Border Adjustment Mechanism (CBAM) comes into force, applying a CO₂ cost to imported carbon-intensive goods to protect EU producers. A new system, known as ETS II, is also being developed to cover emissions from transport and buildings, further expanding the carbon market’s scope.
Conclusion
Thyssenkrupp’s intervention is a reminder of the delicate balance the EU must strike between climate ambition and industrial survival. The ETS has grown from a weak instrument with low carbon prices into one of the world’s strongest market-based climate policies. Yet for energy-intensive industries, its current trajectory may be moving too fast for technological and financial realities. If policymakers adjust the system as Thyssenkrupp suggests, the EU could maintain a more gradual path that sustains industrial competitiveness while still progressing towards climate neutrality. If they do not, Europe risks a scenario where industries struggle to survive, undermining both the funding base and the political support needed for a successful energy transition.
