The joint declaration issued by Confindustria, BDI and MEDEF on 6 July, carried by the Financial Times and addressed to President von der Leyen ahead of the Commission's ETS review proposal due on 17 July, deserves a considered reply. I am sharing it with others who, like me, will be weighing that proposal in the coming weeks.

1. On the Linear Reduction Factor trajectory

The declaration calls for a "realistic" revision of the Linear Reduction Factor (LRF), on three grounds. The first rests on a study by Milan-Bicocca's CESISP, which argues that between 2013 and 2024 the emissions reduction came mainly from plant closures (-14.6%) rather than from the carbon price. But for sectors on the carbon leakage list, free allocation covered up to 100% of direct emissions for almost the entire period under study, only beginning to taper off, very gradually, from 2026. On the part that matters most for heavy industry, the figures cited simply prove nothing — neither that the ETS failed nor that it worked. The second ground is the risk of an "excessive shortage of allowances" before viable decarbonisation pathways exist across every sector: plausible in the abstract, but it assumes a pace of technological progress nobody can guarantee in advance, and risks becoming a standing excuse for delay. The third is that industry shouldn't be made to serve as the "adjustment variable" for slower progress elsewhere, in agriculture for instance — an argument that has things backwards, since it is industry that has spent years receiving near-total free allocation; if anything, it is agriculture that has some catching up to do, not the other way round.

It's also worth widening the lens: the ETS isn't only about energy-intensive industry and utilities. Its revenues fund the Social Climate Fund, building renovation programmes and the Innovation Fund, benefiting SMEs too. For most industries — the non-energy-intensive ones — electricity accounts for under 5% of production costs; it's fossil fuels that bite, at 30–80% (Agora Energiewende data). The problem is gas, not the ETS.

2. On the Market Stability Reserve

The three business associations want to end the automatic cancellation of allowances held in reserve. But the MSR was created precisely to fix the oversupply that, in Phase 3, had made the carbon price irrelevant for years. Here too, the three associations don't speak for the whole of industry: in the ongoing "battle of the steelmakers", ArcelorMittal, ThyssenKrupp and voestalpine are calling for a pause, while nine producers — including Outokumpu, SSAB, Salzgitter and Italy's own Riva Group — are asking for the opposite: a predictable ETS, not a softer one. Back in March, more than a hundred companies, including Tata Steel, Volvo Cars and EDF, had already called for reaffirming the EU's commitment to the ETS as a pillar of European energy sovereignty.

3. On carbon leakage protection

The declaration asks for free allocation to continue beyond 2034 and for indirect cost compensation to be made permanent, until the CBAM has "fully proven its effectiveness". But who gets to decide when that is? It's a condition that may never be met, since free allocation on its own has never driven the industrial transition — if anything, it has slowed it down. The CBAM does need strengthening, including closing gaps on circumvention and downstream sectors, but not as an excuse to make a transitional regime permanent.

What's surprising is that Confindustria has put its name to a request to keep state aid as the main carbon leakage safeguard: on this, Italian and German interests simply don't align. On compensation for indirect ETS costs allowed under the rules — a figure published by Confindustria itself — Germany pays out €2.4 billion a year, Italy just €150 million. On top of that come Germany's Strompreiskompensation scheme (€4.5 billion through 2029) and its Industriestrompreis (€3.8 billion for 2026–2028): sums the Italian public budget cannot remotely match. This isn't the first time this has happened: during the 2022 energy crisis, when the Commission relaxed state aid rules, Germany alone received roughly 49% of all aid approved across the Union, Italy just 4.7%. Asking for carbon leakage protection after 2030 to keep relying mainly on state aid, however "harmonised" it looks on paper, means asking for that imbalance to become permanent — a request that serves German interests far more than Italian ones. The consequence for us is direct: Italy, which doesn't have Germany's fiscal headroom, has an interest in exactly the opposite of what this declaration asks for.

The right answer is to strengthen European-level tools, starting with the Innovation Fund, which should receive far more resources from "Europeanised" ETS revenues instead of being sidestepped by national aid that, as the Italy-Germany gap shows, rewards fiscal headroom rather than genuine decarbonisation.

One last point, on benchmarks. Free allocation doesn't track each plant's actual emissions; it follows a reference value set at the average of the 10% most efficient installations in Europe. Producers who pollute less than the benchmark come out ahead, selling their surplus; those who pollute more have to buy on the market. It's the one part of the system actually designed to reward efficiency. Asking for it to become "more flexible depending on geographic context" opens the door to benchmarks negotiated case by case — the opposite of a rule that applies equally to everyone.

4. On ETS revenues

Here there's agreement in principle: the declaration asks for ETS revenues to be "entirely earmarked for decarbonisation" rather than folded into general budgets — exactly what industries that have already chosen to decarbonise, and NGOs, have been calling for for years. Of the nearly €245 billion raised since the system began, only around 5% has actually been reinvested in industrial decarbonisation; the rest has flowed into national budgets. The problem has never been Brussels: it's governments that haven't earmarked the spending.

That said, the wording chosen in the declaration — "competitiveness and industrial transformation" — is vague, and leaves room for measures that generate not a single tonne of real abatement: the link between ETS revenues and indirect cost compensation should be cut instead. A tighter rule, as ECCO Climate proposes, would fix at 100% the share of revenues earmarked for verifiable decarbonisation, with public reporting. And the consistent ask isn't to extend free allocation, which simply means less ETS revenue overall, but to hold governments to the reinvestment obligation the directive already contains.

5. On flexibility and scope

Two brief points. International credits under Article 6 of the Paris Agreement risk substituting Europe's own industrial transformation with emissions cuts paid for elsewhere, often of uncertain environmental integrity. And excluding shipping and aviation, both in the ETS since 2024, would be the first time sectors already covered are removed rather than extended — a bad precedent that would make the regulatory framework even less predictable. Not to mention that it would keep aviation at an unfair advantage over cleaner but far costlier alternatives like rail. And there's a further reason, beyond the precedent itself: aviation and shipping are among the fastest-growing sources of emissions in Europe — this is the worst possible moment to loosen the oversight, not the best.

The declaration states that the goal isn't to question Europe's climate targets. But a system that slows the cap, puts allowances back into the reserve, extends free allocation and admits foreign credits isn't asking for a "more realistic" ETS: it's asking for a weaker one, at exactly the moment when the credibility of the price signal is what businesses need to invest with confidence. A genuinely pro-European position would ask for the opposite: a credible cap, ETS revenues earmarked for industry as Confindustria itself demands, and a European Competitiveness Fund properly resourced in the next Multiannual Financial Framework. I hope the Commission stays true to its dual role — guardian of the European interest, and guarantor of consistency with the targets already agreed — and doesn't give ground. We await the proposal on the 17th and we will certainly have plenty of occasions to deal with this issue.

Monica Frassoni

President, European Alliance to Save Energy (EU-ASE)