Critics of the proposed reforms warn that any move to dilute the Emissions Trading System could have severe consequences for Europe's climate architecture. Experts from organizations like the Wuppertal Institute and Germanwatch argue that the effectiveness of the ETS relies entirely on the credibility of its scarcity mechanism. If the EU begins to soften the rules whenever industry faces pressure, it signals to the market that the carbon price is subject to political whim rather than economic reality.
This uncertainty is arguably more damaging to industry than the carbon price itself. Companies that have already invested in green steel or other low-carbon technologies rely on a predictable, rising price of CO2 to justify their business models. If the EU weakens the system, it pulls the rug out from under these 'first movers,' making their investments less profitable and discouraging others from following suit. Instead of providing relief, such policy shifts create a climate of hesitation where companies prefer to wait and see rather than commit to the expensive, irreversible path of decarbonization.
Moreover, critics argue that the ETS is not the cause of the structural problems facing European industry. They suggest that the focus should remain on strengthening the system while providing targeted support, such as linking free allocations to binding investment commitments. By creating a 'transformation account' where the value of certificates is tied to actual green investments, the EU could support industry without undermining the carbon price. Weakening the system, they warn, would be a short-sighted move that sacrifices long-term climate goals for temporary, cosmetic relief.