ETS I: The first step towards more stability has been taken, but the work is not yet done

Published on 01/04/26 by Charlotte van de Water

Belgian industrial companies are under increasing pressure from volatile energy and raw material prices, geopolitical uncertainty and rising carbon costs. This is evident from recent reports about companies that postpone investments, but also about companies that – despite difficult circumstances – continue to invest in energy efficiency and sustainability. Both stories show the same reality: the willingness to invest is there, but an energy system that is evolving too slowly and increasing uncertainty risks are putting a brake on the projects.

The European Emissions Trading System (ETS I) is designed as a tool to stimulate investments in the transition of industry. To continue to fulfil this role, the preconditions must be right: affordable and secure energy, sufficient grid capacity and a stable regulatory framework. Against this background, the European Commission recently announced a targeted adjustment of the ETS framework, with the aim of strengthening long-term investment security.

Just to be clear: ETS I should not be confused with ETS II, which is also currently making headlines. ETS II concerns an additional charge on fossil fuels to make technology powered by electricity and renewable energy more financially attractive. If you would like to learn more about ETS II, you are cordially invited to the debate evening 'ETS2, what else? Lever or obstacle for a robust energy transition?' on Thursday, April 23 (from 6 PM to 9 PM), organised by EnergyVille, Flux50, POM Limburg, Thor Park, and Agoria/Sirris. This article discusses the changes to ETS I proposed by the European Commission to meet industry demands to reconsider measures in support of their competitiveness. ETS I is a system that ensures heavy industry and power plants must pay for the CO2 they emit.

Targeted technical adjustment of the ETS system

Specifically, the Commission proposes to stop the automatic destruction of emission allowances in the Market Stability Reserve (MSR). Today, ETS allowances that are above a certain threshold in this reserve are permanently cancelled. In the future, these rights would be retained, allowing the MSR to function as a strategic buffer to cope with excessive market tensions and extreme CO₂ price volatility.

This intervention modifies only one technical parameter of the MSR and does not affect the fundamental architecture of the ETS. It is intended to make the system more robust in the period after the mid-2030s, when the emission allocation continues to decrease and investment decisions become increasingly capital-intensive. By strengthening the MSR as a stabilising instrument, this adjustment contributes to greater price stability and investment security within ETS I.

An economically logical business case remains crucial

Industrial companies have already made significant efforts in recent years to improve their energy efficiency and reduce their emissions. Today, about 60% of the energy consumption of Agoria members comes from electricity. The willingness to invest further in the transition is therefore clearly present.

At the same time, companies are at the beginning of a new, more complex phase of decarbonisation. Electrification of processes, carbon capture and the use of green molecules pose major technological and economic challenges. Not all production processes can be quickly or completely converted. It is therefore essential that the pace and operation of ETS remain in line with the maturity of technologies and the availability of energy infrastructure.

Stability as a lever for investments

The announced European adjustment is in line with a core message from Agoria: ETS must remain a stable investment lever. Companies that have already made progress should not be held back by sudden fluctuations in carbon prices or by an energy system that is lagging behind.

Agoria emphasizes three remaining points of attention:

Maintain and strengthen indirect emission offsetting: Electrification should be rewarded rather than punished by higher electricity prices. Compensation remains essential to make renewable energy interesting as an investment.
Provide stable benchmarks and free allowances: Predictability is crucial, with attention to technological maturity and energy availability, especially for processes involving inherent emissions.
Actively use the Market Stability Reserve as a stabilising tool: Ensure its long-term availability to avoid excessive CO₂ price volatility and maintain investment security.

The European announcement is a positive step forward: emission allowances that were previously destroyed via the 'invalidation rule' will be retained to strengthen the MSR. At the same time, additional measures are still needed to further stabilise the system. The question of how this can also free up additional resources to support the industrial transition and the energy system remains unanswered today.

From European adjustment to concrete implementation

The European Council recently made it clear that climate policy only works if it also supports investment security, competitiveness and affordable energy. The new announcement by the European Commission is a first important step towards bringing more stability and predictability to ETS I. This targeted intervention responds to the call of the Member States to avoid extreme price volatility and to maintain the ETS as an investment tool.

But this is only a start. For the ETS to really work for industry, additional action is still needed: maintaining indirect emission offsetting, stable benchmarks and free allowances, and above all accelerating grid roll-out and affordable renewable energy. Only in this way can European adjustments be translated into concrete investments and sustainable industrial growth.