More than 100 European industrial companies have urged changes to proposed reforms of the EU Emissions Trading System, warning that higher carbon compliance costs could weaken manufacturing investment before plants can obtain the energy and infrastructure needed to decarbonise.
The intervention includes major chemicals and steel producers such as Covestro, Evonik, Wacker Chemie, voestalpine and Thyssenkrupp’s steel division. Their joint letter challenges proposals to make some free emissions allowances conditional on companies committing to decarbonisation investment in Europe.
The manufacturers argue that access to competitive energy prices, grid connections, carbon dioxide infrastructure and markets for lower-emission products is not yet sufficient to support the required investment at every installation. They warn that unamended proposals could increase costs and accelerate factory closures or the relocation of production.
The European Commission proposed a targeted revision of the ETS on 17 July 2026, including changes to the rules governing free allocation, the Carbon Border Adjustment Mechanism and support for industrial decarbonisation. The proposal is undergoing the legislative process and has not become a completed new framework.
The ETS sets an overall limit on emissions from covered activities. Industrial installations must surrender allowances corresponding to their verified emissions, while the available quantity of allowances is controlled to create an incentive for emissions reductions.
Some industrial producers receive allowances without charge because they compete with suppliers in markets where comparable carbon costs may not apply. The arrangements aim to address carbon leakage, in which production shifts to another jurisdiction or imported goods displace domestic production without producing an equivalent global emissions reduction.
Allocation levels are determined through benchmarks and other regulatory conditions rather than matching every tonne emitted by a particular factory. Companies whose emissions exceed the allowances they receive must obtain the difference through the carbon market.
The proposed conditionality would link access to certain free allowances with plans or commitments to invest in cleaner production. The industrial signatories oppose making carbon leakage protection dependent on investment requirements when the equipment and supporting infrastructure for those investments may not yet be available.
Manufacturing processes differ considerably in how emissions can be reduced. A plant may be able to replace a fossil-fuel boiler with an electric alternative, while another may need an entirely different chemical process, hydrogen supply or carbon capture system to address emissions arising directly from production.
Steelmaking illustrates the size of some investment decisions. Moving away from conventional blast furnace routes may involve electric arc furnaces, alternative iron reduction technologies and major changes to feedstock supply, materials handling and electrical connections.
Chemical manufacturers face other constraints, including production heat, feedstock requirements and emissions generated by the chemical reactions themselves. Alternative processes may require new equipment, specialised fuels or electricity networks capable of supporting higher loads.
Such projects involve extended engineering and permitting programmes. Grid reinforcement, plant modifications, equipment manufacture and commissioning can take years, while the financial impact of changing carbon allowances may arrive before the conversion is technically ready.
Energy-intensive manufacturers also compete for investment within multinational groups. A project that appears feasible in engineering terms may be delayed or placed elsewhere if operating costs, procurement commitments and market demand do not support its commercial case.
The companies are seeking fairer allocation benchmarks and a reform timetable that reflects these constraints. Their letter states that industry is prepared to invest in decarbonisation but needs a framework that allows production to remain competitive while equipment and infrastructure are developed.
European industrial associations made similar demands in an October letter to EU leaders and a further position statement issued on 4 November. The latter also called for greater reinvestment of ETS revenue in industrial decarbonisation and measures to create demand for lower-carbon products.
A separate debate concerns the treatment of heat and fuel benchmarks for the 2026–2030 allocation period. Negotiations over those benchmarks should not be confused with the wider ETS revision or treated as proof that the proposed investment conditionality has already been approved.
The Commission argues that carbon-market reform must maintain incentives to reduce emissions while expanding support for investment. Its proposed package includes an Industrial Decarbonisation Bank, an Investment Booster and continued use of established innovation funding arrangements.
Other industrial, energy and environmental organisations have argued that weakening the carbon price could undermine long-term investment in cleaner technology. They support a stable emissions market combined with more effective use of revenues and policies that accelerate the availability of low-carbon industrial processes.
The competing positions concern the relationship between compliance costs and industrial transformation rather than a simple disagreement over whether emissions should fall. Manufacturers are pressing for operating conditions that make new equipment financially practical; supporters of a strong ETS emphasise the need for predictable incentives to invest in that equipment.
The latest intervention comes before further legislative scrutiny, including a European Parliament vote expected in December according to reporting on the industry letter. Until EU institutions agree the revision, the proposals remain subject to negotiation and the current ETS obligations continue to apply.
Future decisions on free allocation, investment conditions and support mechanisms will influence the cost of production for energy-intensive sectors. Those rules will operate alongside electricity prices, infrastructure availability and demand for manufactured goods, all of which affect whether companies commit capital to replacing existing plant.
