Policy debates over EU ETS timing and price stability

EU Carbon Market Tensions

The ongoing policy debate over the timing and design of the new EU Emissions Trading System (ETS) framework continues to dominate climate discussions within the European Union, as member states grapple with conflicting priorities and the challenge of stabilising carbon prices without undermining market effectiveness. Recent regulatory amendments and fresh insights into the economics of carbon removal technologies add new layers of complexity to an already delicate policy landscape.

Intensifying Divisions Over ETS Timing and Price Stability

The fundamental division among EU member states remains pronounced:

Nordic Opposition to Delay: Sweden, Denmark, Finland, and Luxembourg continue to resist any postponement of the ETS rollout. Their argument hinges on maintaining momentum toward the EU’s decarbonisation targets and preserving investor confidence by delivering a predictable, stable policy environment. As Sweden’s Söderenergi’s freeze on bioenergy with carbon capture and storage (BECCS) projects illustrates, delays can quickly translate into stalled green investments.
Estonia’s Openness to Market Interventions: Estonia’s Prime Minister recently emphasized that “all options are on the table” to stabilise ETS prices, signaling openness to tools such as price corridors, strategic reserves, or other mechanisms designed to reduce excessive price volatility. This pragmatic stance reflects concerns about economic predictability for industries and investors amid uncertain carbon pricing.

New Regulatory Developments: Carbon Dioxide Storage Act Amendment

A significant development bolstering the policy debate is the recent amendment to the Carbon Dioxide Storage Act (KSpG). This legislative update aims to clarify and streamline regulatory frameworks governing CO2 storage, a critical component for scaling up CCS and BECCS projects:

The amendment introduces clearer permitting procedures, enhanced environmental safeguards, and greater legal certainty for operators engaging in carbon storage activities.
By reducing regulatory barriers, the amendment is expected to facilitate faster deployment of CCS/BECCS technologies, addressing one of the key obstacles cited by companies like Söderenergi in their project delays.
However, the amendment’s impact depends on how swiftly member states incorporate and implement these changes nationally, highlighting ongoing fragmentation challenges within the EU’s climate policy architecture.

Economic Realities of Carbon Removal: Insights on Direct Air Capture (DAC)

Complementing the regulatory shifts, emerging analyses on Direct Air Capture (DAC) economics underscore the critical role of carbon price levels—and their stability—for the viability of advanced carbon removal technologies:

Contrary to earlier assumptions that a carbon price of around $100 per tonne of CO2 would universally enable DAC deployment, recent input from leading DAC technology providers reveals real-world costs vary significantly based on location, technology maturity, and operational scale.
Volatile ETS prices complicate investment decisions for DAC projects, as unstable or unpredictable carbon revenues increase financial risk.
This dynamic underscores the trade-offs policymakers face: while price stabilisation mechanisms can enhance investor certainty, excessive intervention risks diluting the carbon price signal that drives innovation and cost reductions in DAC and other low-carbon technologies.

Market and Investment Reactions: The Cost of Uncertainty

The combined effect of policy indecision and regulatory uncertainty is tangible in market behavior:

Söderenergi’s postponement of BECCS projects exemplifies how unclear ETS policy timelines and regulatory frameworks can stall deployment of technologies critical to the EU’s 2030 and 2050 climate targets.
Broader market analyses note a trend of capital concentration in projects with well-defined, credible timelines, while investments in riskier or more innovative initiatives face hesitation.
This pattern risks slowing the pace of the low-carbon transition and undermines the EU’s ambition to lead globally on climate action.

Policy Analysis: Balancing Ambition and Market Functioning

The recent policy brief Defragmenting European Union Climate Policy (Pahle, Sultani, Zachmann, 2026) provides a comprehensive framework to understand these tensions:

The EU’s institutional fragmentation and divergent national interests complicate efforts to harmonise the ETS design and rollout.
Price stabilisation tools, while potentially reducing damaging short-term volatility, may affect the supply-demand balance of allowances, risking weakened environmental outcomes if they blunt the carbon price signal.
Maintaining investor certainty through transparent and predictable policies is essential to attract the capital necessary for renewables, energy efficiency, and emerging technologies like BECCS and DAC.

Outlook: What to Watch in the Coming Weeks

As negotiations advance, several critical milestones will shape the trajectory of the EU ETS:

Formal proposals on price stabilisation mechanisms are expected soon, with close attention on how these tools balance market stability with maintaining robust environmental incentives.
Member-state coalition dynamics may crystallize, potentially reflecting economic and political divides—such as the Nordic bloc opposing delays versus other nations prioritizing economic predictability.
The European Commission’s guidance on the ETS rollout timing will be pivotal in setting market expectations and influencing investment flows.
Implementation and enforcement of the Carbon Dioxide Storage Act amendment will be a key regulatory signal for accelerating CCS and BECCS deployment.
Further analysis and policy support for DAC economics will be crucial in integrating carbon removal into the EU’s climate portfolio effectively.

Conclusion

The EU’s ongoing ETS policy debates exemplify the intricate balancing act between ambitious climate goals and the practical realities of market design and investor confidence. The recent regulatory amendments and technological cost analyses deepen the complexity but also provide pathways to address longstanding barriers.

How the EU reconciles these competing pressures—with clear timelines, coherent market design, and supportive regulatory frameworks—will decisively influence its ability to sustain a credible carbon market, drive innovation, and meet its climate commitments. The weeks ahead are critical, with decisions poised to either reinforce or undermine the EU’s leadership in global climate action.

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