For many years, European climate policy has been driven by a simple objective: reducing greenhouse gas emissions. Today, that objective remains unchanged, but the context is different. Europe is increasingly confronted with a second challenge: maintaining industrial competitiveness in a world where companies also compete with regions that benefit from lower energy costs and less demanding environmental regulations.
Recent developments around the European Union Emissions Trading System (ETS) illustrate this evolution. While the EU remains committed to decarbonization, policymakers are increasingly focused on ensuring that the transition strengthens rather than weakens Europe’s industrial base.
Two recent policy discussions are particularly relevant for companies: the introduction of ETS2 and the ongoing debate around linking free carbon allowances to industrial investment.
ETS2: Expanding carbon pricing beyond industry
The European carbon market is entering a new phase.
The existing ETS, often referred to as ETS1, applies primarily to power generation, aviation and large industrial installations. Through this system, companies must purchase or surrender allowances corresponding to their greenhouse gas emissions. ETS2 expands this logic to sectors that were previously outside the scope of the carbon market, including road transport, buildings and certain smaller industrial activities.
In practice, fuel suppliers will be required to purchase carbon allowances, with those costs gradually reflected in the price of fossil fuels such as diesel, petrol and natural gas. The rationale is straightforward: by increasing the cost of carbon-intensive energy sources, the EU aims to encourage the adoption of cleaner alternatives and accelerate electrification.
Why price stability became a concern
One of the main concerns surrounding ETS2 was the potential for excessive price volatility. The experience of the original ETS demonstrated how rapidly carbon prices can increase. Between 2017 and 2023, the price of carbon allowances rose from approximately €5 per tonne of CO2 to peaks above €100 per tonne. Applying a similar dynamic to sectors such as transportation and building heating could have significant economic and social consequences, particularly for households and businesses heavily dependent on fossil fuels. Recognising
this risk, European institutions agreed to strengthen the Market Stability Mechanism within ETS2.
Under the revised framework, if carbon prices exceed approximately €45 per tonne, additional allowances can be released into the market to increase supply and reduce upward pressure on prices. The objective is not to eliminate carbon pricing, but to avoid excessive price spikes and provide greater predictability for market participants.
What ETS2 means for companies
For businesses, the most important consequence is increased visibility. Companies evaluating investments in electric vehicle fleets, heat pumps, self-consumption solar projects, battery storage or energy efficiency measures can now make decisions with greater confidence regarding future carbon
costs. Predictability reduces investment risk.
At the same time, the broader trend remains unchanged. Fossil fuels are expected to become progressively less competitive over time as carbon costs are increasingly incorporated into the economy. The difference is that the transition is likely to be more gradual and more manageable.
The second debate: Competitiveness and free carbon allowances
Alongside ETS2, the European Commission is also reviewing how free carbon allowances are allocated to industry. Historically, many
industrial sectors have received free allowances to mitigate the risk of carbon leakage, the relocation of production to countries with weaker environmental regulations. Sectors such as steel, cement, chemicals, paper, ceramics and glass have long argued that carbon costs, combined with high European energy prices, place them at a competitive disadvantage compared to international competitors.
Under current legislation, these free allocations are expected to decline over time. However, policymakers are now considering a
different approach.
Rather than simply reducing free allowances, companies could retain a larger share of them if they commit to investing in Europe and accelerating their decarbonisation efforts.
Potential qualifying investments could include industrial electrification, renewable energy deployment, green hydrogen, energy efficiency improvements, storage systems and other low-carbon technologies.
A new political narrative
This discussion reflects a broader shift in European policy. For many years, the primary narrative was focused on reducing emissions. Today, the conversation increasingly centres on reducing
emissions while preserving industrial competitiveness.
Initiatives such as the Clean Industrial Deal, the Competitiveness Agenda and various industrial resilience strategies all reflect the same concern: Europe must decarbonize without losing investment, production capacity and economic value.
The message from Brussels is becoming increasingly clear.
The objective is no longer simply to penalise carbon emissions. It is to encourage investment in technologies and projects that strengthen Europe’s industrial future.
What this means for energy investments
For companies, these developments carry three important implications. First, carbon pricing continues to improve the economic attractiveness of electrification, self-consumption, battery storage and energy efficiency. Second, energy projects may increasingly serve not only as cost-reduction tools but also as mechanisms for maintaining regulatory advantages and preserving competitiveness.
Third, investment decisions are becoming more strategic. Energy is no longer simply an operational cost. It is increasingly a factor in resilience, competitiveness and long-term business performance.
This evolution reflects a trend that Helexia sees every day across multiple sectors. Companies are no longer evaluating energy projects solely through the lens of sustainability. Increasingly, they are looking for solutions that reduce exposure to volatile energy prices, improve operational resilience and support long-term competitiveness.
As Europe’s regulatory framework continues to evolve, technologies such as solar self-consumption, battery storage, energy management systems and energy efficiency measures are becoming strategic business assets. The organizations that move early will be better positioned to capture both the economic and regulatory benefits of the transition.
Europe’s energy transition is entering a new phase. Decarbonisation remains the objective, but competitiveness is becoming an equally important driver. For businesses, the challenge is no longer whether to invest in energy transformation, but how quickly they can turn it into a competitive advantage.
