Italian Minister Suggests Suspending EU Carbon Market as ‘Emergency Response’ to Conflict

Italian Industry Minister Adolfo Urso said suspension of the European Union’s carbon emissions trading system (ETS) should be considered as an “emergency response” to the conflict in the Middle East if it cannot be reformed quickly.

Launched in 2005, the ETS was the world’s first carbon market and remains among the largest globally. It requires polluters to pay for their emissions while aiming to reduce overall greenhouse gas output across Europe.

“The suspension of the ETS should be considered precisely as an emergency response to the conflict, pending a revision of the system,” he said in an interview with Italian newspaper La Stampa, published on March 9.

Scrapping the ETS would result in an immediate reduction of between 25 and 30 euros ($28.90 and $34.85) per megawatt hour, Urso said, citing industry estimates.

He has been among the most outspoken critics of the current ETS design, arguing that it places an excessive burden on energy-intensive industries such as chemicals and steel.

Speaking to reporters on Feb. 26 at the Competitiveness Council of EU industry ministers in Brussels, Urso said the system had become a financial burden rather than an effective climate policy. He proposed a temporary suspension of the systems while reforms are negotiated at the European level.

He told La Stampa that his proposal to revise the ETS will be on the March 19 agenda of the European Council meeting, which will bring together the leaders of the EU’s 27 member states to discuss economic and political priorities, including competitiveness, security, and the Middle East.

ETS Revision

The ETS covers emissions from electricity and heat generation, industrial manufacturing, and aviation, which together account for roughly 40 percent of the EU’s total greenhouse gas emissions.

It was expanded in 2024 to include maritime transport and operates across EU member states, as well as Iceland, Liechtenstein, and Norway. It is also linked to Switzerland’s carbon market.

Under the scheme, companies must surrender allowances corresponding to their emissions. If they fail to do so, operators face a 100 euro ($115.50) penalty for each metric ton of excess emissions.

The European Commission is expected to present proposals in July to update the system as part of a broader climate package linked to the EU’s future climate targets, according to a briefing published by the European Parliament on Jan. 16.

The review will examine how the carbon market should evolve after 2030, including the role of carbon removals, the possible expansion of the system to additional sectors and greenhouse gases, and new rules on carbon capture and utilisation.

Another key issue is the risk of carbon leakage, where companies shift production to countries with weaker climate policies. The commission will also assess the market stability reserve and the use of revenues generated from auctioning emissions allowances.

According to Urso, the current mechanism creates “a perverse effect” by encouraging financial speculation in carbon allowances and pushing industrial production outside Europe.

Industry Groups

Nordic industry groups have urged the bloc to preserve its carbon market, warning that weakening the system could undermine investment in clean technologies.

In a Feb. 23 letter to European Commission President Ursula von der Leyen and EU Climate Commissioner Wopke Hoekstra, business federations representing Finland, Sweden, Denmark, and Norway stated that a predictable carbon price was essential to support investments in clean energy, electrification, and industrial decarbonization across Europe.

The organizations—including the Confederation of Finnish Industries, Confederation of Swedish Enterprise, Confederation of Norwegian Enterprise, and Danish Industry—warned that weakening the ETS would threaten both existing and planned investments and increase pressure on national budgets.

They urged policymakers to ensure that the EU’s post-2030 climate framework will continue to be built around a “strong and fit-for-purpose” carbon market.