Germany is urging the European Union to delay the phaseout of free carbon allowances for energy-intensive industries under the EU’s emissions trading system (ETS), according to a report by Bloomberg. Citing rising energy costs and economic pressure, Berlin argues that the Carbon Border Adjustment Mechanism (CBAM), designed to replace free allocations, will not provide sufficient protection for Europe’s heavy industries.
Background: ETS and free allowances
The EU’s ETS rules are set to tighten in 2026, requiring more industries to purchase carbon certificates if they fail to cut emissions.
Free allocations of carbon certificates, long granted to sectors like steel, cement, and chemicals, are scheduled to be phased out by 2034. The phaseout begins with aviation in 2026, gradually extending to other sectors.
The EU plans to replace free allocations with CBAM, which imposes a carbon levy on imports of carbon-intensive goods such as steel and cement.
Germany’s position
At a reception hosted by energy company RWE AG in Berlin, German economy minister Katherina Reiche argued that free allocations must remain in place to prevent deindustrialization.
She warned that, without additional safeguards, essential sectors risk collapse, adding that Germany will seek a solution with the European Commission.
Industry concerns
German industrial groups have voiced strong support for Berlin’s stance:
- Thyssenkrupp has called for a slower phaseout of free allowances, citing risks to steel competitiveness.
- The IGBCE union warned that current rules risk “killing our businesses”.
- Analysts stress that CBAM may not adequately protect complex industries, such as chemicals, where imports are more difficult to regulate.
Economic context
The debate comes at a time of economic weakness in Germany. The country faces high US tariffs and elevated energy prices following Russia’s invasion of Ukraine.
The prolonged downturn underscores the fragile state of heavy industry, raising fears of job losses and reduced investment.
EU response and next steps
The European Commission is currently preparing to expand CBAM’s scope to cover additional carbon-intensive products and strengthen rules to address circumvention tactics by trading partners.
