Energy and industry emissions allowances under the European Emissions Trading System (ETS 1) will be significantly looser than previously planned, according to plans put forward by Federal Economic Minister Katherina Reiche (CDU).
The Ministry’s position, detailed in response to a parliamentary inquiry from the Green faction, confirms that while the government supports the ETS 1 in principle, it believes the system requires improvement. Specific adjustments concern the extension of free allocations of CO2 certificates planned by the EU Commission. When certificates are sold, the revenue generated flows into the German Climate and Transformation Fund (KTF), which is used to finance programs supporting the shift to climate-friendly technologies. Therefore, distributing a larger proportion of certificates for free will reduce the KTF’s income.
The ETS system operates by progressively lowering the total amount of available emission certificates each year, thereby restricting the maximum CO2 output permitted for industry and the energy sector. The government now plans to slow down this reduction pace, meaning higher annual emissions will be permitted than previously allowed.
It has been revealed that Reiche intends for the reduction rate to be even slower than originally scheduled. Furthermore, a limited supply of certificates will remain available even after 2039. This adjustment in response to looser EU climate targets is set to begin only in 2036.
The government acknowledges that this relaxation may put companies that invested early in low-carbon production at a disadvantage-so-called “first movers”. To mitigate these investment risks, Reiche plans to introduce additional support instruments and demand-boosting measures.
However, these plans drew sharp criticism from Green leader Felix Banaszak, who questioned whether the government was punishing those who invested ambitiously in the transition or rewarding them with a competitive edge. Banaszak warned that removing ambition from the emissions trading system would be a serious error. He cautioned that the signal sent to potential investors should be to wait, stating that this approach achieves neither climate goals nor competitiveness.
His colleague Julian Joswig echoed the criticism, arguing that figures like Reiche and Merz were creating unnecessary uncertainty. He stressed that it was irresponsible towards local industries, workers, and climate protection to question the institutional frameworks before demanding investment.
