Italy urges suspension of the EU Emissions Trading System ahead of a planned summer reform proposal, citing competitiveness risks for energy intensive industries.
Since 2005, the ETS has cut emissions by 39 percent and generated more than €260 billion, around $282 billion, in revenues for clean energy and climate investment.
Nordic industry groups defend the carbon market as a cornerstone of EU competitiveness and investment certainty, exposing deep divisions within the bloc.
Brussels saw an unusually blunt intervention this week as Italy’s Industry Minister Adolfo Urso called for the European Union to suspend its Emissions Trading System until a comprehensive reform is agreed later this year.
The ETS, Europe’s flagship carbon market, requires companies to pay for their emissions. It covers heavy industry, power generation, aviation and shipping, with further sectors including international aviation, landfills and incinerators due to be assessed in the upcoming European Commission review.
Urso argues the system is now undermining European competitiveness. “We are all aware that the mechanism of the ETS, as it is currently drafted, is only a tax, a tariff on the energy-intensive companies that struggle to remain competitive,” he told reporters on the sidelines of an industry ministers’ meeting. “It is necessary – we are all aware – to review it in a substantive way.”
He went further, calling for a temporary halt. “To do this properly, it is necessary to suspend the ETS mechanism while awaiting a reform that must necessarily be comprehensive,” Urso said.
Competitiveness Versus Climate Discipline
Italy’s appeal reflects mounting anxiety within parts of European industry over high electricity and carbon prices, particularly as the United States rolls out industrial subsidies under the Inflation Reduction Act and China continues to expand state backed manufacturing.
Urso framed the stakes starkly. “If we are in the face of the collapse of the European chemical industry and the crisis of European ideology, we cannot wait for the time of negotiations within the European Union to find a solution.”
He added that Rome is “looking for an effective organic solution” and will formally ask the Commission to suspend the ETS.
The intervention echoes recent remarks from German Chancellor Friedrich Merz, who floated a similar idea before retreating. Even so, the political signal unsettled carbon markets and briefly drove prices lower.
For corporate leaders, the question is no longer whether carbon pricing will shape European industry, but how stable that pricing architecture will remain.
Nordic Industry Pushes Back
Not all of Europe’s business community agrees with Italy’s approach. In a letter dated 23 February to Commission President Ursula von der Leyen and Climate Commissioner Wopke Hoekstra, industry associations from Finland, Sweden, Denmark and Norway defended the ETS as a strategic asset.
They described it as a “market-based and technology-neutral policy instrument” that supports carbon dioxide reductions while providing investment clarity.
“Reforming the system must be done carefully, because it has such a significant impact on the economy and competitiveness, in addition to the climate,” the letter states.
The associations argued that future EU prosperity is directly tied to the system. Revenues from the ETS, they said, enable decisive investments in clean energy production, critical infrastructure, electrification and industrial decarbonisation.
“Efficient use of the EU’s own resources is central to achieving almost all the Union’s major strategic aims, and these efforts require reliable access to both public and private financing,” the letter reads.
Since its launch in 2005, the ETS has reduced covered emissions by 39 percent and raised more than €260 billion, about $282 billion, according to EU data.
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Risk, Innovation and Policy Stability
Economists and climate strategists warn that suspending the system could introduce deeper structural risks.
Carlo Carraro, President Emeritus and Professor of Economics at Ca’ Foscari University of Venice, cautioned against weakening a mechanism that has demonstrated measurable impact. “Innovation and competitiveness are now inextricably linked to decarbonisation,” he said. “Hindering the transition exposes businesses to increasing technological and financial risks and makes the country less competitive.”
Chiara di Mambro, Director of Strategy Italy and Europe at the think tank ECCO, warned that suspending the ETS or subsidising gas would weaken price signals and increase uncertainty. “Suspending the ETS as proposed today or subsidising gas, as envisaged in the Government’s recent decree, would move Italy in the opposite direction (higher energy prices): weakening the price signal, increasing market uncertainty, and ultimately delaying the transition away from expensive fossil fuels,” she said.
Italy is already preparing reforms to its electricity market that would remove carbon costs from power bills. Analysts suggest fiscal revenues or dividends from energy companies could be used instead to ease household and industrial burdens without dismantling the carbon framework.
What Executives and Investors Should Watch
For boards and investors, the dispute reveals a deeper fault line in European climate governance. The ETS is not only a carbon tool. It is a fiscal engine and a regulatory anchor for clean capital allocation.
Any suspension would disrupt carbon pricing signals, alter project economics and potentially slow investment decisions in renewables, hydrogen, electrification and industrial retrofits. It would also test the EU’s credibility as it negotiates global climate leadership and implements its Fit for 55 agenda.
As the Commission prepares its summer reform proposal, Europe faces a defining question. Can it recalibrate carbon pricing to protect industrial competitiveness while preserving the financial architecture that underpins its climate transition? The answer will shape capital flows and industrial strategy far beyond Brussels.
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