Europe’s climate resolve on trial: why the ETS–CBAM transition must stay the course
In every major transition, there are actors on both sides. The European Union’s phase-out of free allowances under the Emissions Trading System (ETS) and the parallel introduction of its mirror mechanism, the Carbon Border Adjustment Mechanism (CBAM), are no exception.
The rules were adopted years ago. The steel industry currently benefits from billions of euros in free allowances — which is effectively a subsidy to fossil-based production. The gradual phase-out of free allowances is due to begin in 2026 and this means the industry will start paying more for the carbon it emits. These are critical steps in the decarbonisation of Europe. Some businesses have been planning for them already. Others, however, are now pushing back.
Who’s delaying change — and who’s driving change?
It is not surprising, but it is worrying, that some industry players are urging the European Commission to delay these reforms at this late stage. Thyssenkrupp has explicitly called for a slowdown in the phase-out of free allowances. Others frame similar demands in warnings that CBAM must be ‘improved’ — leaving implicit the idea of what must stop if it does satisfy them.
But not all voices in the sector are aligned. Salzgitter’s CEO, Gunnar Groebler, warned against such pushback, saying that changing the rules after investment decisions have been made “makes those investments a real threat to the industry and the companies themselves.”
Meanwhile, Eurofer, representing the broader steel industry, continues to call for “major adjustments” to the CBAM design.
The debate exposes a deep split within the sector: between those preparing for a decarbonised future and those clinging to the status quo.
Three reasons why the Commission must stay the course
There are three good reasons why the Commission should push ahead and not give in to industry doomsayers:
- Free allowances have gone on long enough
For nearly two decades, Europe’s steelmakers have received generous allocations of free permits to emit greenhouse gases. This is a hidden fossil subsidy that weakens the incentive to decarbonise. Since the introduction of the EU ETS in 2005, EU steelmakers have received an estimated amount of EUR 56.4 billion as free allowances according to Steel News’ calculations, reported in December 2024. In 2022 alone, ArcelorMittal received EUR 3.7 billion in free allowances. The announced phase-out path is gradual, not abrupt. It is time for the industry to move firmly onto that path. - Regulatory consistency is essential
Climate regulation including carbon pricing, is meant to shape long-term investment decisions. If policies are changed at the last minute, they lose their credibility — and every climate policy to come will lose its teeth.
Nicole Voigt, a steel expert at the Boston Consulting Group, put it succinctly in her Panorama interview:
“All of our economic actors have adapted to it. (…) If I start making changes in one area now, the changes will permeate all industries. The question is: Do I want that? Do I suddenly want to introduce uncertainty into the overall system again?”
Her point is clear: Europe’s policy framework must be stable enough to allow transformative investments to proceed with confidence. - Europe’s direction is already prompting global action
CBAM is already having ripple effects around the world. From Istanbul to Seoul to Beijing, policymakers and companies are now discussing how to design carbon pricing systems of their own. China added steelmaking to its own emerging carbon pricing system earlier this year. The EU is catalysing exactly the kind of global conversations that are needed for wider climate action.
To backtrack now would send the wrong signal and not only undermine Europe’s credibility but also weaken the momentum of climate action globally.
The choice is clear
Change is rarely comfortable. It is predictable that some corporate voices will complain under the strain of transition. But Europe’s direction must remain clear: either move forward with the future or hold back progress to stay in the past.
The EU’s decision to phase out free allowances and uphold a robust CBAM is not just an internal policy tweak. It is a test of Europe’s climate resolve — and a signal to the world about whether the continent will lead or lag in the industrial transformation to come.
