FRANKFURT — More than 100 European companies have warned that proposed reforms of the European Union's carbon market could sharply raise costs for energy-intensive industries before they have the means to decarbonise, threatening investment and production in Europe. The warning came in a joint letter seen by Reuters and reported on 5 November 2026, signed by major industrial names including Covestro, Evonik, Wacker Chemie, Voestalpine and the steel division of Thyssenkrupp. The companies said they were ready to invest in the green transition, but argued that the European Commission's proposal for overhauling the Emissions Trading Scheme (ETS) would not, on its own, create the conditions to make those investments possible and competitive.
Illustration: A European steel plant with smokestacks under a cloudy sky, representing the energy-intensive industries warning about EU carbon market reform.
What Happened
More than 100 European companies put their names to a joint letter warning that the European Commission's planned overhaul of the EU carbon market risks doing serious damage to the continent's energy-intensive industries. The letter, seen by Reuters and reported on 5 November 2026, was signed by leading chemicals, materials and steel producers, including Covestro, Evonik, Wacker Chemie, the Austrian steelmaker Voestalpine and the steel division of Germany's Thyssenkrupp.
The companies' central argument is one of timing. They say the proposed reforms could sharply raise the cost of emitting carbon dioxide before many factories have the technology, infrastructure or affordable clean energy they need to cut their emissions. "Europe's energy-intensive industries face intense competitive pressure, high energy costs, and an increasingly difficult investment environment. Yet our common objective is clear: we want to decarbonise, invest and continue producing in Europe," the letter says.
The signatories were careful to stress that they are not opposing climate action itself. On the contrary, they present themselves as willing partners in the transition — provided the policy framework makes investment in Europe viable. "We are ready to make the investments required for the transition. Still, Europe must provide the conditions to make them possible and competitive, including globally competitive energy prices, infrastructure, and demand for low-carbon products. The Commission's ETS proposal cannot provide such a framework on its own," the letter says.
Left unchanged, the letter warns, the reform could "increase costs and accelerate production closures or relocation" — a direct warning that factories could shut down or move outside the European Union if the new rules take effect as proposed. That prospect, the companies argue, would undermine both European industry and the climate goals the reform is meant to serve, since production shifted abroad would continue to emit carbon under looser rules elsewhere.
A particular point of contention is the future of free carbon allowances — permits that energy-intensive companies currently receive at no cost to help them compete with rivals in countries without a carbon price. Under the Commission's proposal, free allowances would in future only be available to companies that commit to decarbonisation investments in Europe. The signatories reject that condition, calling instead for fairer benchmarks to determine how free allowances are allocated.
The letter lands at a sensitive moment for the reform. According to Reuters, analysts have raised their forecasts for EU carbon-market prices, with a survey last week showing expectations of higher costs ahead — a trend that would intensify the pressure on the industries that signed the letter.
Background
The dispute centres on the EU Emissions Trading Scheme, known as the ETS, the European Union's main tool for cutting greenhouse gas emissions. Under the scheme, companies must buy permits for every tonne of carbon dioxide they emit. The permits are tradable, so a market price emerges for each tonne of CO2, and that price is meant to give companies a financial incentive to pollute less. Over time, the number of permits in circulation is reduced, tightening the cap and pushing the price up.
In July 2026, the European Commission proposed an overhaul of the scheme, including changes to how free allowances are handed out — the issue that has drawn the strongest objection from industry. The Commission's stated aim is to make the ETS a sharper instrument for driving emissions down, in line with the EU's climate targets. The ETS is central to the EU's goal of reaching climate neutrality by 2050, and because it puts a direct price on pollution, it is one of the most consequential pieces of climate legislation for European business.
This is not the first time European industry has mobilised on the issue. Earlier pressure came in June 2026, when about 40 industrial corporations — including BASF, Evonik, Covestro, Thyssenkrupp and ArcelorMittal — pressed EU leaders ahead of the ETS revision, according to reporting by dpa. That earlier intervention set the stage for the July proposal, and the November letter shows that the industry's concerns have not been eased by what the Commission put forward.
Meanwhile, the political process around the reform is already producing compromise ideas. According to reporting by MLex on 5 November 2026, a draft compromise from Ireland, which is steering negotiations in the Council of the EU, would let companies retain most of their free allowances even if they fail to carry out required decarbonisation investments. The same draft, MLex reported, would strengthen protections against double carbon payments for shipping and include adjustments for aviation, waste incineration and carbon removals.
The debate also takes place against a backdrop of rising carbon prices. Analysts raised their forecasts for EU carbon-market prices, a survey showed last week, according to Reuters — higher expected prices mean higher expected costs for companies that must buy permits, raising the stakes of every design choice in the reform.
Illustration: The carbon trading concept, with CO2 permits and a factory skyline above European industry.
Why It Matters
The letter matters because it brings together, in a single public intervention, more than 100 companies from the industries most exposed to the carbon price. The breadth of the signatories — spanning chemicals, steel and other energy-intensive sectors — signals that the concern is not limited to one company or one country, but is shared across the industrial base that the EU is counting on to decarbonise.
At the heart of the dispute is a question that runs through climate policy everywhere: how fast can the price of pollution rise before it starts to destroy the industries it is meant to transform? The companies' answer, as set out in the letter, is that the price signal only works if the alternatives are available. Without globally competitive energy prices, the infrastructure to deliver clean energy, and demand for low-carbon products, they argue, higher carbon costs will simply push production — and its emissions — outside Europe.
That risk, known in climate policy as carbon leakage, is the reason free allowances exist in the first place. They are designed to protect European companies from competitors in countries without a carbon price while they invest in cleaner production. The companies' objection to making those allowances conditional on investment commitments is that it would remove protection from the firms least able to invest quickly, accelerating the closures and relocations the policy is meant to prevent.
The debate also matters for jobs and for Europe's industrial strategy. Energy-intensive industries employ large numbers of people directly and support many more in supply chains, from carmaking to construction. Factory closures would have consequences well beyond the companies themselves, affecting regions where a single steelworks or chemicals plant is a major employer.
There is also a credibility question for the EU's climate policy. The ETS is the Union's flagship climate instrument, and if the reform is seen to damage European industry without cutting global emissions — because production simply moves elsewhere — it could weaken support for climate policy at home and abroad.
At the same time, the companies' intervention puts pressure on the Commission and EU lawmakers to show that the reform will be accompanied by the measures industry says it needs: cheaper clean energy, the infrastructure to deliver it, and markets for low-carbon products.
Illustration: A modern European factory with wind turbines and solar panels, representing the decarbonisation transition.
What Happens Next
The immediate next step is political. The European Parliament is to vote on the ETS reform in December 2026, according to Reuters. That vote will be a key test of how far lawmakers are willing to go in amending the Commission's proposal, and industry groups are expected to lobby intensively in the weeks leading up to it.
In parallel, negotiations continue in the Council of the EU, where member states must agree a common position. The draft compromise from Ireland reported by MLex on 5 November suggests that the Council debate is already moving towards softer treatment of free allowances, with companies able to retain most of them even if planned decarbonisation investments do not go ahead. The draft also addresses shipping, aviation, waste incineration and carbon removals.
The timing of the debate also coincides with the international climate calendar. COP31, the next United Nations climate conference, opens in Antalya, Turkey, on 9 November 2026. The conference will put the EU's climate policies under international scrutiny, and the outcome of the ETS debate will shape what the Union can credibly promise on the world stage.
For the companies that signed the letter, the coming weeks will be about turning their warning into amendments. They have made their case in public; now the question is whether the Parliament and the Council will adjust the proposal — by softening the conditions on free allowances, adopting fairer benchmarks, or pairing the reform with measures to bring down energy costs.
For readers following the story, the December vote is the date to watch. Until then, expect further interventions from industry, from environmental groups arguing the opposite case — that the ETS must be strengthened, not weakened — and from member states weighing the competing demands of climate ambition and industrial competitiveness.
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FAQ
What is the EU Emissions Trading Scheme?
The Emissions Trading Scheme, or ETS, is the European Union's main tool for cutting greenhouse gas emissions. Companies covered by the scheme must buy permits for every tonne of carbon dioxide they emit. The permits are tradable, creating a market price for each tonne of CO2, and the total number of permits is gradually reduced over time to drive emissions down. The ETS is central to the EU's goal of reaching climate neutrality by 2050.
What are the companies asking for?
More than 100 European companies are asking EU lawmakers to change the Commission's proposed ETS overhaul so that it does not sharply raise costs before industries have the means to decarbonise. In particular, they reject plans to make free CO2 allowances available only to companies that commit to decarbonisation investments in Europe, and they call instead for fairer benchmarks for allocating free allowances. They also want globally competitive energy prices, infrastructure and demand for low-carbon products.
Why do the companies say the timing is wrong?
According to the joint letter, energy-intensive industries already face intense competitive pressure, high energy costs and a difficult investment environment. The companies argue that the reform would raise the cost of emissions they cannot yet avoid, because affordable clean energy, green hydrogen and the necessary infrastructure are not yet available at the scale required. They say they are ready to invest in the transition, but the framework must make those investments possible and competitive.
What happens next in the legislative process?
The European Parliament is to vote on the ETS reform in December 2026. At the same time, negotiations continue in the Council of the EU, where member states are working towards a common position. A draft compromise from Ireland, reported by MLex on 5 November 2026, would let companies retain most free allowances even if required decarbonisation investments are not carried out, and would adjust the rules for shipping, aviation, waste incineration and carbon removals.
What is COP31 and does it affect the ETS debate?
COP31 is the next United Nations climate conference, opening in Antalya, Turkey, on 9 November 2026. It does not decide EU law, but it puts the EU's climate policies under international scrutiny, and the outcome of the ETS debate will shape what the Union can credibly promise on the world stage.
Sources
- Reuters, 5 November 2026 — "European industry calls for changes to carbon reform to avoid more factory closures", by Christoph Steitz, Frankfurt. https://www.reuters.com/business/environment/european-industry-calls-changes-carbon-reform-avoid-more-factory-closures-2026-11-05/
- MLex, 5 November 2026 — reporting on the draft compromise from Ireland in Council negotiations on the ETS reform.
- dpa via EuropeSays, June 2026 — reporting on about 40 industrial corporations pressing EU leaders ahead of the ETS revision.
- European Commission — background on the EU Emissions Trading System (ETS) and the July 2026 reform proposal.
- European Parliament — the ETS reform vote scheduled for December 2026.
- UNFCCC — COP31, opening in Antalya, Turkey, on 9 November 2026.
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