By Enrico Cipelli Alves, Policy Advisor, Sustainable Markets & CCS

Published in Revolve

This year’s Strait of Hormuz disruption cost Europe €22 billion in extra fossil fuel imports in just 44 days. Not one extra unit of energy delivered. That is the price of dependency. As the Commission prepares to unveil its EU ETS reform on July 17th, some Member States and powerful lobbies are pushing a dangerous narrative: that carbon pricing is driving up energy costs and undermining competitiveness and resilience. Reality shows the opposite. The ETS is Europe’s clearest tool for cutting electricity costs, strengthening industry, and shielding the continent from the next energy shock. Weakening it would make all three worse. 

The evidence speaks for itself 

Start with bills. Spain and Italy pay the exact same EU ETS carbon price. Yet in early 2026, Italy’s wholesale electricity price was more than double Spain’s — €132.52/MWh versus €56.95/MWh. The difference isn’t carbon pricing; it’s renewables. Under the merit order system, the costliest plant still running sets the price for all electricity sold, even cheap-to-run solar and wind. In Spain, wind and solar investment means gas sets the price only 15% of the time, while in Italy, it’s 89%. Across the EU, generation costs (mainly gas) make up over 56% of the average bill, grid charges 18%, taxes 15% – carbon costs just 11%, yet they carry most of the blame. Weakening the ETS won’t lower bills. It will raise them by slowing the rollout of renewables that keep gas out of the price-setting seat and deepening Europe’s dependence on imported fuel. 

The EU imports almost 90% of its gas, meaning that geopolitical shocks that disrupt energy supply chains (Hormuz, Ukraine, COVID-19) translate into domestic price spikes. The ETS is a powerful tool for breaking this cycle, creating a structural incentive to invest in domestic renewables and industrial transition. Cutting it during an energy crisis is like unbuckling your seatbelt in traffic — it might feel like relief, but it won’t stop the crash, and you’ll feel every bit of the impact. 

The real competitiveness crisis, and what’s actually driving it 

European industry is in a genuine competitiveness crisis. Energy costs are volatile, infrastructure is lagging, and investment is uncertain. But carbon pricing isn’t the cause, but rather the underused half of the fix. The ETS is the stick, and it’s supposed to generate the carrot. Without a strong carbon price, Europe forfeits the revenues needed to fund industrial transformation. Furthermore, under the current disbursement rules, these funds haven’t been put to proper use. Member States earmarked around 5% of their ETS revenues between 2013-23 for industrial decarbonisation, and only 8% of the €53 billion disbursed between 2021 and 2024 can be clearly traced to that purpose. 

Industry has grown just as accustomed to underinvestment. Profits have grown nearly twice as fast as wages, and jobs are cut to lift shareholder returns, not because of losses. Free allowances, meant to bridge firms to low-carbon production, have fed the same habit: over-allocation across sectors, generating windfall profits and failing to translate into green investments. The three largest steelmakers alone received €25 billion in free allowances between 2021 and 2025 but committed only €3.2 billion of their own capital to decarbonisation. An effective carbon cost of under €2/tCO2. Little wonder 62% of Europeans want free-allowance recipients required to reinvest that value in cutting emissions. 

Yet industry isn’t asking for a weaker ETS. In a joint letter to EU Heads of State, over 150 companies and investors warned that undermining the ETS “would not aid the competitiveness of European industries — it would erode investment certainty and damage Europe’s industrial future.” These are steel, cement, and chemical producers who’ve committed billions to clean tech because the ETS provides a stable signal. Paired with CBAM, emissions performance becomes a competitive advantage, not just a cost. Weakening the ETS now punishes the frontrunners and rewards the laggards. As InfluenceMap shows, the loudest voices claiming to speak for “industry” don’t represent the full breadth of views within it. What industry needs is a predictable carbon price, matched by rules that put its own revenues to work. 

The propeller, not the anchor 

None of Europe’s pressures (high bills, weak competitiveness, geopolitical exposure) are caused by the ETS. All three share one root cause: dependence on imported fossil fuels and decades of underinvestment in homegrown clean energy. The ETS is built to fix exactly that. It has already cut emissions nearly 50% since 2005, with electricity and heating emissions falling 24% in 2024 alone. All without denting GDP growth. 

On July 17, the choice isn’t between climate ambition and economic pragmatism. It’s between a Europe that owns its energy future and one that stays hostage to fossil markets it can’t control. Weaken the ETS, and Europe trades a working framework for higher bills, deeper dependency, and a lost claim to climate leadership. Strengthen it, and Europe keeps the tool already cutting emissions and driving industrial transformation. The architecture can still be improved. Fixing the misallocation of ETS revenues, attaching strict conditionalities to free allowances, and building a well-funded Industrial Decarbonisation Bank are good starting points. What’s needed now is the political courage to defend the ETS against lobbying by a handful of heavy emitters who’d rather delay than adapt.