Europe should evolve its carbon market, not dilute it,’ investors say
Poinews.com – Europe should evolve its carbon market, as a coalition of 45 influential investors managing €11.4 trillion in assets has called on EU leaders to safeguard the Emissions Trading System (ETS) from weakening. The investors argue that maintaining a robust carbon market is crucial for driving private capital into industrial decarbonisation and ensuring Europe remains a leader in the global transition to clean energy.
The Case for a Strong Carbon Market
The ETS, Europe’s cornerstone for reducing greenhouse gas emissions, has been a key driver of climate action since its inception in 2005. Investors highlight that the system’s strength lies in its ability to provide a clear price on carbon, encouraging industries to innovate and adopt sustainable practices. By evolving the ETS rather than diluting it, Europe can better align its economic strategy with environmental goals, ensuring long-term investment in green technologies and infrastructure.
Legislative Review and Strategic Goals
As EU Council discussions approach on June 18 and 19, the future of the ETS is under scrutiny. A legislative review is set to begin on July 15, following the European Commission’s proposal for a four-year strategy to reduce fossil fuel dependence. This strategy includes modernising electricity grids, expanding energy storage solutions, and scaling up renewable energy projects. Investors stress that these measures require a stable and predictable carbon pricing mechanism, which the ETS currently provides.
Since 2005, emissions from electricity generation and industry under the ETS have dropped by around 50%, with the system projected to achieve a 62% reduction by 2030. Most progress has come from the power sector, where coal use has declined as wind and solar energy expand. However, the current trajectory may not be sufficient to meet Europe’s ambitious climate targets, underscoring the need for continued evolution of the carbon market.
Industry Challenges and Investor Concerns
While heavy industries face unique challenges in decarbonisation—such as long asset lifetimes, high capital requirements, and technological limitations—investors insist that these hurdles can be overcome with targeted support and a resilient ETS. They oppose proposals to soften carbon pricing as a quick fix for industrial competitiveness, arguing that such measures could undermine the system’s effectiveness. Instead, they advocate for structural reforms to address inefficiencies in electricity costs, grid reliability, and access to affordable clean energy.
The ETS is not a regulatory obstacle but an economic signal guiding trillions in investment. Institutional investors rely on consistent carbon pricing to make informed decisions, and a strong ETS aligns with their fiduciary goals. It shields portfolios from climate, energy, and policy risks while enhancing clarity for real-economy investments. Diluting the system would create uncertainty, deterring the long-term funding needed for Europe’s green transition.
A Call to Action for EU Leaders
Walter Hatak, head of responsible investments at Erste Asset Management, warned that weakening the ETS could jeopardise investor confidence. He emphasised the need for predictability in carbon pricing to attract private capital and support Europe’s decarbonisation ambitions. The investors’ letter, endorsed by firms like Allianz SE, L&G Asset Management, and the Church of England Pension Board, underscores that the ETS must evolve to address emerging challenges while maintaining its role as a cornerstone of Europe’s climate strategy.
