Twenty years after its inception, the European Emissions Trading System (ETS) has proven to be a tool for reducing CO₂ in Europe. But today, warns the Carbon Market Outlook 2025 of the Polytechnic University of Milan, it risks losing its original nature and turning into a disguised tax.
According to the study, carried out by the Energy & Strategy Group in collaboration with CO₂ Advisor, from 2005 to 2024, Italian emissions subject to the ETS decreased by 49%, going from 226 to 115 million tonnes of CO₂ equivalent. No other measure produced comparable results. The so-called “carbon intensity”, i.e. the tons of CO₂ per million euros of turnover, has fallen in all the main industrial sectors: -39% for cement, -37% for chemicals, -28% for paper and -21% for ceramics.
“The ETS system worked because it put the market – and not bureaucracy – at the center of decarbonisation,” explains Andrea Ronchi, CEO of CO₂ Advisor and co-author of the report. The idea behind the mechanism is simple: those who pollute pay, but they can also reduce their costs by investing in cleaner technologies or purchasing “shares” from those who pollute less.
Over the years, however, the ETS has changed. More and more allowances are auctioned by member states, who collect the proceeds: in 2024, revenues exceeded 38 billion euros. This evolution, the report underlines, risks transforming the system from “market-based” to “tax-and-trade”, a hybrid where fiscal logic prevails. “When revenues go to states and not to efficient technologies, the principle of economic reward that made the ETS a success is lost,” warns Ronchi.
The Polytechnic’s analysis also highlights another fact: Italy is investing around 110 billion euros a year in “command and control” measures – subsidies and incentives – which reduce just 11 million tonnes of CO₂, with a cost of over 10,000 euros per tonne. In the ETS system, however, average prices have never exceeded 100 euros.
The report then takes a look to the future. ETS 2 will come into force from 2027, which will extend the price of carbon to fuels for transport and home heating. A change that will directly impact citizens, making the system more similar to a carbon tax. At the same time, the CBAM, the new European “climate duty” on CO₂-intensive imports, will be fully operational. However, the researchers warn, the mechanism will not protect European exporting companies, which risk finding themselves at a disadvantage on global markets.
Among the prospects considered most promising is the possible reintroduction of CO₂ credits into the ETS system, excluded since 2013. These credits, generated by certified projects for the reduction or removal of emissions, could reduce the costs of the transition and guarantee true technological and geographical neutrality, in line with Article 6 of the Paris Agreement.
“The climate challenge is global – concludes Ronchi – and we must invest where the reduction of emissions is most effective, not where bureaucracy imposes it. Only in this way can the transition be truly sustainable”.
Today, over 26% of global emissions are covered by carbon pricing tools, compared to just 6% in 2019: an expansion that confirms how the price of CO₂ has become the most powerful lever for decarbonisation. However, an open question remains: will Europe be able to maintain the efficiency of its system without transforming it into a new climate tax?
