Thursday, 4 June 2026
A new report from the Warsaw Enterprise Institute argues that the European Union’s Emissions Trading System (ETS) is imposing growing economic costs on businesses and households while delivering uncertain benefits for competitiveness and long-term decarbonisation. The study compares the ETS framework with alternative market-oriented climate policies and concludes that reforms may be needed to balance environmental goals with economic growth.
According to the report, companies covered by the ETS incurred an estimated €46 billion in annual costs in 2023 when aviation and maritime sectors are included. The authors calculate that the broader impact on the EU economy may have reached as much as €55 billion, equivalent to approximately €123 per capita across the bloc.
The report warns that costs could increase significantly over the coming decade as free emission allowances are phased out and the planned ETS 2 system extends carbon pricing to road transport and building heating. Under a fully implemented ETS framework, annual compliance costs for businesses could rise to approximately €140 billion based on current emissions levels and carbon prices.
Researchers argue that the ETS market has experienced periods of significant price volatility. Carbon allowance prices increased from around €20 per tonne in 2020 to peaks near €100 per tonne in 2022 before moderating. The report states that such fluctuations create uncertainty for companies planning long-term investments in decarbonisation technologies.
The study also highlights differences in how ETS-related costs are distributed across the European Union. It suggests that more industrialised and energy-intensive economies in Central and Eastern Europe face a proportionally higher burden than wealthier service-oriented economies in Western Europe. Countries such as Poland, the Czech Republic, Slovakia and Romania are identified as particularly exposed because of their industrial structures and greater reliance on conventional energy sources.
As alternatives, the report proposes two market-based mechanisms developed under the Climate and Freedom Accord framework. The first, Decarbonization Tax Cuts (DTCs), would reduce corporate tax rates on income generated by lower-emission products within high-emission sectors. The second, Rapid Innovation Funds (RIFs), would provide tax incentives for investments in industrial equipment and technology upgrades.
The authors estimate that these measures could stimulate additional economic activity while supporting emissions reductions through technological innovation rather than carbon pricing. Under the report’s modelling, the combined economic benefits of these alternatives, together with avoided ETS costs, could amount to up to €245 per capita across the EU under optimistic assumptions.
The report concludes that Europe faces increasing pressure to maintain industrial competitiveness while pursuing climate objectives. It calls for policymakers to reassess the current balance between regulatory measures and market-based incentives, arguing that future climate policies should focus more strongly on encouraging investment, innovation and productivity growth alongside emissions reductions.
