EPICO has published a new study together with Frontier Economics analysing a critical turning point for the EU Emissions Trading System. The report examines the current political debate and outlines the structural questions policymakers will face ahead of the upcoming EU ETS revision.
The carbon market is entering a new phase: the supply of allowances will continue to decline, while the architecture of carbon leakage protection is shifting as free allocation is phased out and the Carbon Border Adjustment Mechanism (CBAM) is introduced. The key challenge will be to balance industrial competitiveness with decarbonisation in this new phase.
The study focuses on four key themes:
- the long-term trajectory of the EU ETS cap
- the transformation of carbon leakage protection as free allocation is replaced by CBAM
- the impact of rising carbon prices on energy-intensive industries
- policy options to strengthen competitiveness, investment certainty and industrial decarbonisation.
The report reaffirms the EU ETS and CBAM as central pillars of European climate policy while outlining options to adapt the system to its next phase.