Signed, sealed... stalled? Pragmatic answers for a turbulent season
Welcome to our June Policy Update!
If you're a European steelmaker already squeezed by soaring energy costs and global competition, the arrival of the 50% U.S. tariff on steel imports adds yet another blow, pricing your precision tubes out of reach for American buyers in sectors like aerospace and hydraulics. With margins evaporating back in Europe, clean steel investments risk stalling, and so do the jobs they were meant to support.
Zoom out, and it’s clear that leadership transitions are adding fresh turbulence. At the Vatican, newly elected Pope Leo has pledged to uphold Pope Francis’ green legacy. But head a few hundred kilometres North, and you’ll find a very different shift: Poland’s new president, Andrzej Navrocki, is expected to push back hard against EU climate policy, potentially giving new momentum to Eastern European resistance already brewing.
A key target of that resistance? ETS 2. The system is locked into EU law and set to launch in 2027, but its implementation is under threat. Poland, Czechia, and Bulgaria are calling for delays over rising carbon costs, citing concerns on social impact and how to pay for it. That’s why our recent work tackled both angles: our policy report proposes frontloading ETS 2 revenues with EIB support, while our event focused on the spending side, highlighting how direct payments to citizens, if done right, could build social backing and make the system fairer. You can read more about this in the sections below.
Meanwhile in Berlin, the energy transition has entered a critical phase. As our new Flexibility Agenda publication shows, Germany still lacks a clear plan to unleash demand-side flexibility, the kind that lets EVs, heat pumps and households adjust their power use to match the grid. Without it, the risk isn’t just higher prices, but slower progress on decarbonisation.
Leadership may be changing, but climate commitments can’t afford to. From tariffs to transmission, getting the implementation right is now the real test.
NEW POLICY REPORT: Strengthening the EU ETS 2 through Revenue Frontloading
The upcoming launch of the EU’s second Emissions Trading System (ETS 2) in 2027 is set to be a milestone in European climate policy. For the first time, emissions from buildings and road transport - sectors responsible for over 40% of EU-wide emissions - will be subject to a carbon price. However, the system is facing growing political resistance, particularly from Central and Eastern Europe, with Poland, Czechia and Bulgaria calling for a delay and citing concerns over high costs and public opposition. At the same time, many Member States have yet to submit their Social Climate Fund plans, raising questions about preparedness for implementation.
EPICO’s new policy paper, Strengthening the EU ETS 2 through Revenue Frontloading, developed with Frontier Economics, proposes a pragmatic solution to safeguard ETS 2 before the political window closes. The paper outlines how Member States could voluntarily access up to €50 billions of their future ETS 2 revenues in advance, via an EU-level facility backed by the European Investment Bank. This would allow governments to begin investing in clean transport, energy efficiency and social protection, well before the system formally begins. Crucially, the mechanism maintains the integrity of the carbon price and avoids new EU-level debt, offering a fiscally sound compromise that helps secure public and political support.
Read what Simon Munkler, co-author and Policy Specialist for Decarbonisation of the Buildings Sector, EPICO KlimaInnovation, has to say: “To ensure the introduction of ETS 2, we urgently need a compromise that maintains market-based emissions reduction while enabling Member States to scale up investments – especially in the buildings and transport sectors. For buildings, it is crucial that additional funds made available through Revenue Frontloading be used for support programmes, tax relief and direct payments – so that households can be supported from day one and negative distributional effects minimised.”
ETS 2 cannot afford delay: postponing its start would not only weaken the EU’s climate credibility, but also risk undermining the architecture of emissions trading more broadly, including ETS 1 and the Carbon Border Adjustment Mechanism.
The credibility of EU climate action rests on keeping ETS 2 on track.
Learn more about our study HERE.
WHAT YOU MIGHT HAVE MISSED: Ensuring the Success of ETS 2 – The Role of Direct Payments
While EPICO’s new Policy Report focused on the source of revenues of ETS 2, our recent event “Ensuring the Success of ETS 2: The Role of Direct Payments” looked more at the spending side, particularly – nomen omen – direct payments.
We were happy to welcome with a full room of attendees Director Beatriz Yordi from DG Clima, who gave the opening keynote speech, setting the stage for a lively and engaging panel discussion featuring MEP Peter Liese, ADAC’s Monica Berg, Reform Institute’s Zofia Wetmanska, and EEB’s Luke Haywood.
Speakers reaffirmed the importance of ETS 2 as a tool to decarbonise the buildings heating and mobility sectors and presented direct payments to citizens as a key solution to make ETS 2 more socially inclusive - if designed with transparency and attention to national differences. At the same time, the Social Climate Fund, which will channel ETS 2 revenues to households and small businesses, was highlighted as a critical enabler of this effort, despite some concerns about its funding sufficiency.
Panellists also raised concerns about public resistance and discussed solutions and strategies to generate social legitimacy. In particular, they remarked that direct payments should be tailored to reflect differences in income level, fossil fuel dependence, and existing climate polices across Member States. Furthermore, attention needs to be given to the allocation of revenues, which should be clearly earmarked for climate and social purposes and no absorbed into general budgets. Paramount was the call for transparency in the design of the direct payment mechanism, essential for a successful implementation and social redistribution.
Through synergies in perspectives and some divergences in opinions, panellists concluded that ensuring the success of ETS 2 will require political commitment and the right policy mix that leaves no one behind.
You can check out the full gallery and takeaways of the event HERE, and replay the discussion on our YouTube channel.
NEW PUBLICATION: Priorities for a Flexibility Agenda for the German Electricity System
Germany’s energy transition has entered a critical phase. As the country moves towards a largely renewable electricity system, flexibility must become a central pillar of energy policy. This is not simply about building more storage or power lines, but about enabling households and industry to adjust electricity use in response to supply and grid conditions. While the European Union has already recognised flexibility as a key driver of affordable and secure energy, Germany still lacks a clear and coordinated political framework to unlock its full potential. With a new government in place, there is a timely opportunity to change that.
EPICO’s latest policy report, developed with Guidehouse, sets out a concrete agenda to accelerate demand-side flexibility. Among its priorities are speeding up the rollout of smart meters, expanding the use of dynamic electricity tariffs, and reforming grid fees so that flexibility becomes economically attractive. Without action, Germany risks higher electricity costs, inefficient grid expansion, and slower progress on climate goals. By contrast, a well-designed flexibility agenda could turn existing technologies like electric vehicles and heat pumps into valuable tools for a more efficient, consumer-friendly power system.
Dr Bernd Weber, co-author, Founder and Managing Director, EPICO KlimaInnovation sets the record straight: “Flexibility is not a ‘nice-to-have,’ but the operating system for the next phase of the energy transition. We can’t afford to leave the vast flexibility potential – and the efficiency and savings it brings – untapped. That’s why the new federal government should present a flexibility agenda that removes existing obstacles for households and industry, launches structural reform of grid charges, and rapidly scales up smart meters and dynamic tariffs in a pragmatic way.”
Read the full report HERE (in German).
Spotted: EPICO in the Media
- EPICO’s Julian Parodi was quoted in L’Echo on the uncertain future of steel production in Europe. Read it here.
- El Confidencial quoted EPICO’s Joachim Schmitz-Brieber on the role of EU rules in reviving Germany’s industrial base. Read it here.
- EPICO’s CEO Bernd Weber co-authored an op-ed with IW in Welt on the urgent infrastructure investments needed to make the energy transition succeed. Read it here.
- Handelsblatt covered EPICO’s ETS 2 recommendations, including frontloading key revenues to support social and industrial transitions. Read it here.
- Handelsblatt covered EPICO’s latest Flexibility Paper, highlighting how German electricity consumers could save billions while stabilising the grid. Read it here.
- Süddeutsche Zeitung’s Digitalwende newsletter spotlighted EPICO’s Flexibility Paper as part of a broader reflection on digital and energy sovereignty. Read it here.
- Münchner Merkur featured EPICO’s critique of the EU’s ETS 2 rollout, warning of missed deadlines and avoidable social risks. Read it here.
- Tagesspiegel Background cited EPICO’s Flexibility Paper in its reporting on Michael Reiche’s plans to relaunch Germany’s power plant strategy. Read it here.
- Tagesspiegel Background featured EPICO’s analysis on how to finance socially just climate action in the EU, drawing on insights from both the ETS 2 and Transport & Environment papers. Read it here.
- Energate reported on EPICO’s ETS 2 event and study, which calls for earlier distribution of revenues from the new carbon pricing system. Read it here.
- Tagesspiegel Background reported on EPICO’s ETS 2 Paper, outlining proposals for accelerated funding distribution under the EU’s new emissions trading system. Read it here.
- Energate featured EPICO’s call for a Flexibility Agenda to modernise the electricity system. Read it here.
- Tagesspiegel Background reported on EPICO’s roadmap for priority measures to unlock flexible electricity use. Read it here.
Are you a climate and energy journalist looking for new voices to interview? REACH OUT to EPICO’s Senior Communications Specialist Agata Gurgenidze (Germany) and EU Communications and Media Specialist Michela Sandron (EU).