Tuesday, 2 June 2026
A new report published by the Warsaw Enterprise Institute argues that the European Union’s Emissions Trading System (ETS) is imposing growing costs on businesses and households while creating uncertainty for long-term investment planning.
The study, In Search of the Optimal Climate Policy, examines the economic impact of the EU’s carbon trading framework and compares it with alternative climate policy measures based on tax incentives and investment support mechanisms. The report forms part of a broader research initiative assessing whether elements of the EU Green Deal, including the ETS and Carbon Border Adjustment Mechanism (CBAM), should be replaced or complemented by alternative market-based approaches.
According to the report, companies operating under the ETS faced carbon allowance costs of approximately €46 billion annually based on 2023 emissions data and allowance prices of around €80 per tonne. The authors estimate that the broader economic impact of the system could reach up to €55 billion annually, equivalent to roughly €123 per EU citizen.
The report warns that the planned expansion of the system through ETS 2, which will extend carbon pricing to road transport and building heating, could significantly increase costs. In a scenario where free allowances are fully phased out and ETS 2 is fully implemented, annual compliance costs could rise to approximately €140 billion across the European economy, according to the study. More than €50 billion of that total would come from road transport alone.
A key concern highlighted by the authors is carbon allowance price volatility. The report notes that allowance prices increased from around €20 per tonne in 2020 to as much as €100 in 2022, which it argues creates uncertainty for businesses planning long-term decarbonisation investments. The study also cites statistical analysis suggesting that allowance markets experienced speculative price bubble characteristics between 2017 and 2023.
The report further argues that ETS costs are not evenly distributed across the European Union. It suggests that industrial and energy-intensive economies in Central and Eastern Europe face a proportionally higher burden than wealthier Western European countries due to their economic structures and greater reliance on conventional energy sources.
As alternatives, the authors propose two market-oriented mechanisms. The first, Decarbonisation Tax Cuts (DTCs), would reduce corporate tax rates for low-emission products in high-emission sectors. The second, Rapid Innovation Funds (RIFs), would provide tax exemptions for investment financing aimed at supporting new technologies and industrial modernisation. The report argues that both measures could encourage emissions reductions while lowering the economic burden associated with carbon pricing.
The publication comes as European policymakers continue to debate the balance between climate targets, industrial competitiveness and energy affordability. The authors conclude that climate policy should place greater emphasis on innovation and investment incentives while reducing the costs they associate with the current emissions trading framework.
