Industry: Merz against further weakening of emissions trading

In a letter that is available exclusively to Handelsblatt, the Chancellor strengthens the EU's stance on the most important climate protection instrument for the first time. The industry, however, calls this a “catastrophe”.

In a letter to Ursula von der Leyen, Chancellor Friedrich Merz demands that the EU must ensure investment security in emissions trading (ETS). We should stick to the market economy system.

With the ETS reform, the EU Commission plans to extend the auction of certificates and give companies more time for climate protection.

Companies in the chemical and steel industries are warning of loss of competition and are calling for changes.

The EU member states and the EU Parliament are expected to agree on a common position on the reform by the end of the year.

Brussels, Berlin, Düsseldorf. Chancellor Friedrich Merz (CDU) wants to stick to the EU's course on emissions trading (ETS). This emerges from a letter to Commission President Ursula von der Leyen (CDU), which is available exclusively to Handelsblatt. This is the first time that Germany has publicly positioned itself in opposition to several partner countries.

It is “extremely important that the EU ensures investment security in emissions trading,” says the letter to von der Leyen. The ETS is a “well-functioning, market-based system that we must not question”.

The letter is dated last Friday and refers to the EU summit in mid-October, at which the issue was discussed at the urging of some heads of state and government. EU states such as Italy and the Czech Republic view emissions trading critically. They demand significant relief.

With the letter, Germany is clearly publicly positioning itself on the other side of the spectrum for the first time and is referring to the so-called front runners, i.e. the companies that invested in the transformation early on. Merz writes that European companies have built their business models on the expectation of reliable CO₂ price signals.

In doing so, Merz supports those who are critical of easing emissions trading that would lower the forecast level of CO₂ prices.

The EU Commission presented the reform of emissions trading in July. The climate protection instrument has been in force since 2005 and ensures that CO₂ emissions cost money. The companies from the energy and industrial sectors that are obliged to participate are only allowed to emit harmful greenhouse gases if they can provide a certificate for this. The majority of these certificates are auctioned, and a small portion is allocated to companies free of charge. A certificate that entitles you to emit one ton of CO₂ currently costs around 80 euros.

The auction of the certificates was originally supposed to end in 2039. By then, the affected industries would have had to be practically climate-neutral. The planned reform should now give companies more time to reduce their emissions.

Emissions trading is a success from a climate policy perspective: Since the instrument was introduced, emissions in the relevant sectors have already fallen by 50 percent. At the same time, it costs the participating industries billions every year.

Some member states and energy-intensive sectors had recently significantly increased the pressure on the EU Commission to make the reform industry-friendly. The warning signals from the industry were clear: They argued that they would lose their competitiveness if they were not relieved of CO₂ prices. The climate protection instrument represents a burden worth billions for both the chemical and steel industries. In addition, they face global competition and suffer from high energy prices in Europe.

Just a few days ago, Markus Kamieth, head of the chemical company BASF, and the CEO Markus Steilemann of competitor Covestro demanded in a letter to Merz that fundamental corrections be made to the EU Commission's reform proposal. Otherwise, emissions trading threatens to become an “accelerator of disinvestment and industrial loss of substance”.

According to her, the chemical industry is in an unprecedented crisis; ten percent of production capacity will have been lost between 2022 and 2025. “The de-industrialization of our continent is no longer an abstract danger, but is already a reality that must be stopped,” write the two managers.

The clear positioning of the chemical industry cannot be transferred to all energy-intensive sectors. In the steel industry you have to differentiate: companies like Salzgitter or Saarstahl, which are already well advanced in the transformation, are critical of efforts to weaken emissions trading. Others, on the other hand, who are investing massively in the transformation but also have to maintain conventional production processes for years to come, are calling for relaxations.

With the reform, the Commission is also making the member states and companies responsible: in the future, they should be obliged to return a large part of the income from emissions trading to the companies so that they can manage the transformation.

The Handelsblatt had already reported exclusively on the reform ideas in February of this year. As a result, the chemical industry's share prices reacted positively at the time, while raw materials companies such as Heidelberg Materials were among the day's losers in the Dax.

Merz now argues that the current reform should be used to make the system future-proof and increase the competitiveness of the industry. It is important that this process is completed quickly.

The reform should be in place by the end of the year. To do this, member states and the EU Parliament must agree on a common position. As the largest member state of the EU, Germany has particular importance.

Praise for the letter comes from the rapporteur Peter Liese (CDU). He is the MEP responsible for the reform and also plays a key role in the negotiations.

Liese told the Handelsblatt that while it was right to reform emissions trading, it was also right that it should be preserved at all costs. This applies “because of the climate and also because of the investments that were made in Germany with confidence in a strong emissions trading system,” said the European Parliamentarian. Large industrial investment projects such as the conversion of steel production to hydrogen-based processes at Saarstahl depended on it.

However, there is strong resistance from energy-intensive industries. The letter was a “catastrophe,” an industry representative told Handelsblatt.