Merz urges EU to hold line on carbon market reforms amid growing opposition

German Chancellor Friedrich Merz has urged Brussels not to reopen the European Union's carbon market compromise, in a move that underlines growing political tension over the bloc's climate policy. In a letter seen by Euronews, Merz called for the EU to stand firm on reforms to the Emissions Trading System and to avoid further changes to its second phase. He said investment certainty was essential and warned that uncertainty could damage long-term planning in Europe's energy and industrial sectors.

The intervention comes as the European Parliament and EU governments negotiate the European Commission's July 17 proposal to align the Emissions Trading System with the bloc's 2040 climate target. The reform has become increasingly contentious, with several EU countries seeking to weaken or even scrap parts of the system, arguing that carbon pricing has contributed to high electricity costs. Merz said businesses need predictable carbon prices to make investment decisions and argued that the current compromise should be concluded quickly.

The German chancellor also said the impact of carbon pricing on electricity bills should be handled through existing compensation mechanisms rather than by changing the emissions trading rules themselves. Those mechanisms are designed to help electricity-intensive industries cope with indirect carbon costs and international competition. Merz's position is notable because it differs from that of his own Economy and Energy Minister, Katherina Reiche, who has pushed to relax carbon rules and extend free emissions allowances for industry.

The dispute matters because the Emissions Trading System is one of the European Union's main tools for cutting greenhouse gas emissions while steering investment away from high-polluting activities. Power generators and energy-intensive industries must buy allowances for their emissions, while some heavy industries receive free allowances to ease the transition. Any change to the system can affect electricity prices, industrial costs and the pace of decarbonisation across the bloc.

Merz also took a firmer line on ETS2, the EU's second carbon market, which is due to take effect in 2028 and will extend carbon pricing to fuels used in road transport and heating buildings. He said the compromise reached in early 2026 to delay its introduction until 2028, alongside measures to stabilise prices, should be preserved. His comments suggest Berlin wants the EU to keep the current balance between climate ambition and competitiveness, rather than reopen a deal that was already politically difficult to secure.

What remains unclear is whether Merz's intervention will influence the talks now under way in Brussels, or whether other member states will continue pressing for further changes. The European Commission has not yet concluded the reform process, and the final shape of the rules will depend on negotiations with both governments and lawmakers. The outcome will be closely watched by industry groups, energy companies and governments weighing the cost of the EU's climate transition.

#EuropeanUnion #EmissionsTradingSystem #FriedrichMerz #carbonmarket #climatepolicy