The Case for Abolishing the EU Emissions Trading System

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By Professor Em. Samuel Furfari. Between 1982 and 2018, he was a senior official at the Energy Directorate-General of the European Commission, where he has devoted an entire career to energy technology and policy. He is a Chemical Engineer, having taught energy geopolitics and energy politics at Brussels ULB University (Université Libre de Bruxelles), between 2003 and 2021, where he also obtained his phD, with a thesis in the field of energy. 

 

1. Introduction: From Maastricht to Lisbon, and the Question Now

When French President François Mitterrand arrived at the Maastricht European Council on 9 December 1991 for the final negotiation of what would become the Treaty on European Union, he removed from the draft the chapter on energy that had been prepared during the negotiations under the Italian Presidency in cooperation with the European Commission. The French President was emphatic: he would not allow the energy policy of France to be decided in Brussels. He had in mind, in particular, the growing political opposition to nuclear energy in several Member States, and he understood with clarity that the loss of sovereign control over the energy mix would, sooner or later, be turned against the French nuclear programme on which his country had built its energy security since the first oil shock. History has shown that he was right. The Treaty signed at Maastricht on 7 February 1992 therefore contained no energy chapter, and the Union remained, formally, without an energy competence.

The political situation had changed by the time the Treaty of Lisbon was negotiated. The Russia-Ukraine gas crisis of January 2006, which interrupted gas flows to several Member States during a particularly cold winter, made the absence of a Union-level competence in energy politically untenable. The crisis was repeated in January 2009, during the Lisbon ratification period, and confirmed the diagnosis. Energy security, network interconnection and the completion of the internal market in electricity and gas required, it was argued, a shared competence between the Union and the Member States. The Lisbon Treaty was signed on 13 December 2007 and entered into force on 1 December 2009. For the first time in the history of European integration, it contained a chapter dedicated to energy.

That chapter, now Article 194 of the Treaty on the Functioning of the European Union (TFEU), reflects a carefully negotiated balance. Under Article 194(1) TFEU, the Member States accepted that the Union’s competence in energy matters extended to the functioning of the internal energy market, security of supply, the promotion of energy efficiency and energy saving, the development of new and renewable forms of energy, and the interconnection of energy networks. These are precisely the policy areas in which the cross-border nature of the problem required common action. But the Member States also insisted, in the second paragraph of Article 194, on an explicit protection of sovereignty over the fuel mix. Measures adopted under Article 194(1), the Treaty provides, “shall not affect a Member State’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply”. The wording is unambiguous: the shared competence stops where the choice between coal, gas, oil, nuclear and renewables begins. That choice remains a sovereign prerogative of each Member State.

This was the constitutional bargain on which the Member States accepted, in 2007, the loss of sovereignty that Mitterrand had refused in 1991. It is precisely this bargain that the European Union Emissions Trading System (EU ETS), as it has been developed since the revision of Directive 2003/87/EC in 2009 and successively reinforced under the Green Deal and the Fit-for-55 package, has progressively undone. The ETS imposes, through a Union-wide carbon price, a coercive and asymmetric pressure on the fuel mix of every Member State. Coal-based systems are driven into the ground; gas is penalised; nuclear is implicitly favoured but actively excluded from green-finance instruments; only intermittent renewable sources, dependent on subsidies and on the burning of gas to compensate for their intermittency, are admitted as politically acceptable. The choice between energy sources is no longer a sovereign Member State decision. It is a Brussels decision, enforced by a price set in an emissions market designed in Brussels. The protection that Article 194(2) TFEU was negotiated to provide has, in practice, been written out of the constitutional text.

The financial scale of the system makes the question pressing. The EU ETS generated EUR 38.8 billion in auctioning revenue in 2024 alone, and more than EUR 245 billion cumulatively since 2013. From 1 January 2028, a parallel system—ETS2—will extend carbon pricing to the heating fuels of European households and to road-transport fuels, reaching some 40 per cent of Union emissions previously regulated only by command-and-control instruments. Once ETS2 enters into force, the constitutional, economic and political costs of withdrawal will rise sharply. The time to reconsider the system is now, before the institutional and financial lock-in becomes complete.

This article argues that the EU ETS should be withdrawn. The argument is developed in eight steps. Section 2 sets out the constitutional framework of Article 194(2) TFEU and shows how the institutions have systematically narrowed its protective scope. Section 3 turns to Article 192(2)(c) TFEU and the unanimity rule, demonstrating that the ETS in substance operates as a carbon tax that should have been adopted unanimously. Section 4 documents the structural asymmetries between net beneficiary and net contributor Member States. Section 5 draws on the Draghi report of September 2024 to quantify the competitiveness penalty borne by European industry. Section 6 confronts the system’s defenders with the empirical record: three decades of climate diplomacy and global emissions up by approximately two thirds. Section 7 addresses the principal counter-arguments mobilised by the beneficiaries of the system – revenue mobilisation, abatement efficiency, climate leadership and protection against leakage – and finds them insufficient. Section 8 explains why the political economy of the ETS creates a closing window for reform. Section 9 concludes.

2. The Constitutional Foundation: Article 194(2) TFEU and Energy Sovereignty

As recalled above, Article 194(2) TFEU is the textual expression of a negotiated constitutional bargain. After authorising the Union to legislate in energy matters under the ordinary legislative procedure, it provides that such measures “shall not affect a Member State’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply”. The provision was the price that the Member States exacted in 2007 for accepting the shared competence that Mitterrand had refused at Maastricht.

This protection echoes a much older principle of public international law: the permanent sovereignty of States over their natural resources, recognised by United Nations General Assembly Resolution 1803 (XVII) on 14 December 1962. It is not a residual clause or a polite gesture toward national susceptibilities. It is a substantive limit on Union competence, comparable in constitutional weight to the protection of national security under Article 4(2) of the Treaty on European Union.

Despite this textual clarity, the practical scope of Article 194(2) TFEU has been progressively eroded through two distinct mechanisms. First, the Court of Justice of the European Union has adopted a narrow interpretation according to which the protection applies only where the Union measure has, as its “primary intended result”, the modification of a Member State’s energy mix. Any measure whose declared aim is environmental, climatic or related to internal-market integration is held to fall outside Article 194(2), even when its concrete effect is to force a Member State to abandon coal, restructure its district-heating network or write off its refining capacity. Second, the Member States themselves have largely failed to invoke Article 194(2) in Council negotiations, accepting under political pressure a stream of secondary legislation that progressively rewrites their energy systems.

The judicial narrowing is doctrinally indefensible. By insisting on the formal aim and primary intended result of a measure, the Court has reduced Article 194(2) TFEU to a constitutional formality that virtually no environmental measure can ever trigger. A textualist reading would require, on the contrary, that any measure whose foreseeable substantive effect is to alter the structure of a Member State’s energy supply must respect the limit. The current jurisprudence converts a hard constitutional limit into a soft preamble. This is precisely the outcome that Mitterrand had foreseen and refused in 1991.

This view is no longer marginal. On 10 June 2025, the Polish Constitutional Tribunal, in its judgment K 10/24, ruled by majority that the interpretation of Article 192(1) TFEU in conjunction with Article 192(2)(c) developed by the Court of Justice – whereby the unanimity requirement is restricted to measures whose primary intended result is to affect the energy mix of a Member State – is incompatible with Articles 2, 4(1), 7, 8(1) and 90(1) of the Polish Constitution. The Tribunal’s reasoning is constitutionally significant: it holds that the adoption of the ETS Directive and its successive revisions, by a qualified majority rather than by unanimity, constitutes a transfer of sovereign competence beyond what was ratified by the Polish parliament when it acceded to the European Union. Whatever one thinks of the institutional standing of the Tribunal in Warsaw’s ongoing constitutional debate, the substantive question it raises – whether the ETS lawfully exists at all – is now formally on the European agenda and cannot be dismissed.

3. The Fiscal Substance of the ETS and the Bypass of Article 192(2)(c)

The constitutional problem of Article 194(2) TFEU is compounded by a second, equally serious problem. Article 192(2)(c) TFEU requires the Council to act unanimously, after merely consulting the European Parliament, when adopting environmental measures “significantly affecting a Member State’s choice between different energy sources and the general structure of its energy supply”. The same paragraph also requires unanimity for measures “primarily of a fiscal nature”. The ETS satisfies both conditions. It was nevertheless adopted, and successively revised, under Article 192(1) TFEU and the ordinary legislative procedure, i.e. by qualified majority.

The Union institutions have defended this choice on the ground that the ETS is a market-based environmental instrument, not a tax. The Court of Justice endorsed this reading in Case C-366/10, Air Transport Association of America v Secretary of State for Energy and Climate Change, holding that the inclusion of aviation in the EU ETS by Directive 2008/101 did not create a “direct and inseverable link” between the amount payable and the fuel consumed, and therefore did not constitute a tax, fee or charge on fuel within the meaning of bilateral air-services agreements. This formal characterisation has insulated the entire system from the unanimity requirement that would otherwise apply.

This reasoning is unsustainable on economic grounds. The defining characteristic of a tax is a compulsory payment to a public authority in exchange for no specific direct counterpart, generating revenue for the State. EU ETS allowances auctioned by the State, purchased by an emitter for cash, surrendered annually as a condition of operation, and ultimately retired from circulation satisfy every element of this definition. Indeed, since the revision of the Directive in 2023, Member States are obliged to use 100 per cent of the revenue collected (or an equivalent financial value) for specified policy purposes – which is precisely how earmarked fiscal revenue functions in any modern public finance system.

The European Commission itself has acknowledged the difficulty. In its Communication of 9 April 2019 entitled “Towards a more efficient and democratic decision-making in EU energy and climate policy” (COM(2019) 177 final), the Commission noted that energy taxation under Article 113 TFEU requires unanimity, and complained that this requirement was no longer adapted to the Union’s climate ambition. The implicit admission is significant: where the Commission could not obtain unanimity, it routed the same substantive policy through Article 192(1) by characterising it as environmental rather than fiscal.

The character of the ETS as fiscal in substance becomes still more obvious with ETS2. From 2028, fuel suppliers will be required to purchase allowances on a fully auctioned basis to cover the carbon content of heating fuels and transport fuels they place on the market. The pass-through to households will be direct and visible at the pump and on the gas bill. No serious analyst can pretend that a payment of this kind is anything other than an excise levy by another name. The aviation case of 2011 provided a thin formal cover for the original ETS; it cannot survive the visible reality of ETS2. If the substance rather than the form of the measure is to be decisive – as Article 192(2)(c) and Article 194(2) TFEU manifestly intend – then unanimity was required, was not obtained, and the system therefore rests on a constitutionally vulnerable foundation.

4. Structural Asymmetries and Rent-Seeking among Member States

Beyond the constitutional question lies an empirical one. The ETS produces highly asymmetric outcomes among Member States, generating a concentrated coalition of beneficiaries and a more diffuse population of net contributors. According to the European Commission’s 2025 report on the use of ETS revenues (COM(2025) 735), the auctioning of allowances generated EUR 38.8 billion in 2024, of which EUR 24.4 billion went directly to national budgets. The four largest recipients – Germany (EUR 5.5 billion), Poland (EUR 3.8 billion), Spain (EUR 2.6 billion) and Italy (EUR 2.6 billion) – account for between 50 and 60 per cent of direct revenue.

More importantly for the political economy of the system, the financial infrastructure of the European carbon market is geographically concentrated. The principal auction platform (the European Energy Exchange, EEX) is located in Leipzig; carbon derivatives trading is dominated by the Intercontinental Exchange in London and by a small number of investment banks in Frankfurt and Amsterdam. The professional ecosystem of carbon market intermediaries – brokers, verifiers, registry administrators, climate-finance consultants, voluntary-market rating agencies – is similarly concentrated in a handful of jurisdictions and is increasingly funded by the very system whose continuation it advocates.

On the cost side, the burden falls disproportionately on Member States whose industrial structure is energy-intensive and whose electricity generation still relies on coal or carbon-intensive fuels: Poland, Czechia, Bulgaria and Romania for coal; Belgium, the Netherlands and Italy for refining and heavy chemicals; Germany for steel, cement and chemicals. The same Member States benefit from the Modernisation Fund as a partial compensation, but the design of that fund – and of the future Social Climate Fund – institutionalises an asymmetric flow that resembles a redistributive transfer dressed as environmental policy.

This asymmetry is more than a distributive inconvenience. It explains the political durability of the system. Member States that host the financial intermediaries, the trading venues, the certifying bodies and the climate-finance industry have powerful sectoral lobbies that benefit directly from rising allowance prices and from any extension of the system’s scope. Member States whose households and industries bear the cost are politically constrained from challenging the system by the conditional flow of fund revenue. The result is a classic rent-seeking equilibrium: the few who benefit are well organised and lobbied; the many who pay are diffuse and rationally apathetic. The continuation of the ETS does not reflect the calm deliberation of twenty-seven Member States acting in their common interest; it reflects the inertia of a coalition that has captured a fiscal instrument and is unwilling to let go of it.

5. The Competitiveness Penalty: Evidence from the Draghi Report

In September 2024, Mario Draghi presented his report on “The future of European competitiveness” to the European institutions. The report – commissioned by President von der Leyen and authored by a former president of the European Central Bank who can hardly be suspected of climate scepticism – documents the magnitude of the competitiveness gap created by Union energy policy. EU industrial electricity prices, the report concludes, are two to three times those in the United States and in China; gas retail and wholesale prices are three to five times those in the United States. Historically, before the energy crisis of 2022, the gap was already two to three times for gas; it has widened, not narrowed, since.

The Draghi report identifies several structural causes for this gap: dependence on imported gas, exposure to spot markets, the marginal-pricing mechanism in the European electricity market, under-investment in grids and storage, and the very high level of energy taxation and regulatory levies. The ETS allowance price – which reached an annual average of approximately EUR 65 per tonne of CO₂ in 2024, after peaks of more than EUR 90 in 2023 – is a direct contributor. For a coal-fired plant, emitting around 0.9 tCO₂ per MWh of electricity, an allowance price of EUR 65 represents a cost of nearly EUR 60 per MWh; for a gas-fired plant emitting around 0.35 tCO₂ per MWh, the cost is around EUR 23 per MWh. These charges feed directly into wholesale electricity prices and, through the marginal-pricing rule, into all power purchased on the market, including from carbon-free generation.

The consequence is structural deindustrialisation. Energy-intensive sectors – steel, aluminium, ammonia, methanol, chlorine, basic petrochemicals, glass, ceramics, cement – cannot survive a permanent transatlantic energy cost gap of the magnitude documented by Draghi. Closures and relocations have already occurred in basic chemicals (Germany), ammonia (Belgium), aluminium (Slovakia, France), and refining across the continent. The Carbon Border Adjustment Mechanism (CBAM), often invoked as a remedy, addresses only the imported component of finished goods, leaves complex value chains exposed, and provokes trade retaliation from major partners. It is a fiscal patch on a structural wound, and it cannot recreate industrial capacity once that capacity has been written off.

The Draghi report is unable to draw the obvious conclusion because of the political context in which it was commissioned: it cannot question the climate objective itself. But the diagnosis unambiguously points to one of the principal proximate causes of the European competitiveness gap, namely the cost imposed by the Union’s carbon-pricing architecture. Removing the ETS would not by itself close the gap, but it would remove the most visible policy-induced component of the differential.

6. The Ineffectiveness of the ETS in Reducing Global Emissions

The deepest critique of the EU ETS is empirical. The system was justified, and is still justified, with the claim that it reduces global CO₂ emissions and thereby mitigates climate change. The historical record offers no support for this claim. According to the Global Carbon Budget series, global fossil CO₂ emissions reached 38.1 gigatonnes in 2025 – an increase of approximately 69 per cent since 1990 and of roughly two thirds since the Rio Summit of June 1992 that launched the United Nations Framework Convention on Climate Change.

Over the same period, the European Union has held thirty Conferences of the Parties,[1] adopted the Kyoto Protocol and the Paris Agreement, launched the European Climate Change Programme, created the ETS, the Effort Sharing Regulation, the Renewable Energy Directive, the Energy Efficiency Directive and the Green Deal – and global emissions continued to rise.

The European Union’s own share of global greenhouse-gas emissions has fallen from 15.2 per cent in 1990 to 6.0 per cent in 2023, according to data published by the European Parliament. Most of the reduction reflects the collapse of East German and post-Soviet heavy industry in the early 1990s, the partial switch from coal to gas, the closure of energy-intensive industries (often through relocation outside the Union), and the COVID-19 contraction – not the price signal of the ETS. The same period saw the rise of China to a 30 per cent share of global emissions, India approaching 7 per cent, and the rapid emissions growth of Indonesia, Vietnam, Bangladesh, Pakistan, Egypt, Nigeria, Ethiopia and dozens of other developing economies.

This trajectory will continue. China commissioned more new coal-fired capacity in 2023 and 2024 than the rest of the world combined. India’s coal output is at record levels and growing. Indonesia and Vietnam are expanding coal generation aggressively. The African continent, where some 600 million people still lack access to electricity, will inevitably increase its use of fossil fuels – including coal – as a precondition for industrialisation and for the most elementary human development. Renewable energy sources cannot meet this demand at the required pace, scale or cost. To pretend otherwise is to misunderstand the engineering, the economics and the geopolitics of energy.

In this global context, the contribution of the EU ETS to the trajectory of atmospheric CO₂ concentrations is, by elementary arithmetic, negligible. Even on the highly optimistic assumption that the ETS by itself has reduced EU-covered emissions by 100 megatonnes a year, that quantity is less than three per cent of China’s annual increase and within the year-on-year fluctuation of global emissions. Even a complete decarbonisation of the European Union by 2050 would not perceptibly affect the global concentration of CO₂ in the atmosphere. The cost-effectiveness ratio of the EU ETS, measured in tonnes of global CO₂ abated per euro of cost imposed on European households and industry, is therefore close to zero.

The professional defenders of the system answer that the Union must “lead by example” and that other major emitters will follow. This claim was already implausible in 2005; it has now been falsified by twenty years of evidence. No major emitter has followed. The United States has now explicitly withdrawn from key climate commitments. China operates a national emissions trading system that covers only the power sector and trades at less than one tenth of EU prices. India has rejected any binding emission cap. The “Paris Disagreement” is evident. The leadership-by-example theory of EU climate policy is not a theory; it is a hope unsupported by evidence. The ETS imposes real and large costs on Europe in exchange for a symbolic and ineffectual contribution to a global problem that Europe cannot, alone, solve.

7. The Arguments of the System’s Defenders: A Critical Examination

Any honest case for withdrawal must engage with the arguments advanced by those who benefit from the system’s continuation. Five such arguments deserve particular attention.

7.1. The cost-effectiveness argument

The first and most respectable argument is that carbon pricing is the cheapest known instrument for reducing emissions: by leaving the allocation of abatement to the market, the ETS in principle ensures that the cheapest tonnes are abated first. This argument was decisive in the 1990s economic literature on emissions trading. It is much less persuasive in the European context of 2026.

The cost-effectiveness theorem assumes that the ETS operates in isolation, against a counterfactual of no abatement. In reality, the Union now layers the ETS with dozens of overlapping command-and-control instruments: mandates for renewable shares, CO₂ standards for vehicles, energy-efficiency obligations under the Energy Performance of Buildings Directive, the ban on internal combustion engine vehicles by 2035, the ReFuelEU Aviation mandate for sustainable aviation fuels, the FuelEU Maritime mandate, methane regulations, the Net-Zero Industry Act, and so on. Each of these instruments forces specific abatement choices regardless of price. The ETS no longer “discovers” the cheapest abatement; it taxes activities that are simultaneously constrained by quantitative mandates. The economic case for an emissions trading system collapses once the system is no longer the principal abatement instrument.

7.2. The revenue-mobilisation argument

The second argument, increasingly the most candid, is that the ETS finances climate action and supports the Social Climate Fund. The cumulative EUR 245 billion revenue since 2013 is real money, and Member States have grown accustomed to spending it. This is exactly the problem identified in Sections 3 and 4 of this paper. If the ETS is justified by the revenue it raises, then it is a tax; and if it is a tax, it should have been adopted by unanimity under Article 192(2)(c) and 194(2) TFEU. The revenue argument is not a defence of the ETS; it is a confession that the system has become primarily a fiscal mechanism.

The recycling of ETS revenue back to households through the Social Climate Fund is, moreover, highly inefficient. It creates a circuit in which money is collected at the petrol station and the heating bill, transferred to national administrations, channelled through Brussels, allocated by political criteria, and finally returned – partially and with significant administrative loss – to a subset of the same households. The political risk of this circuit was demonstrated in France by the gilets jaunes in 2018 and in Germany by the controversy surrounding the Gebäudeenergiegesetz in 2023. The yellow-vest movement was triggered by a far smaller carbon-tax increase than ETS2 will impose from 2028.

7.3. The judicial-validation argument

The third argument relies on the Court of Justice’s decision in Air Transport Association of America to assert that the ETS is not a tax and therefore that the unanimity requirement of Article 192(2)(c) and 194(2) does not apply. As argued in Section 3, this argument confuses form and substance and rests on a thin and dated judicial reasoning that pre-dates the radical extension of the system through ETS2. Constitutional courts in Member States are now beginning to push back: the Polish Constitutional Tribunal’s K 10/24 judgment is the first major instance, but it is unlikely to be the last. The Open Skies framing was always doctrinally weak; with ETS2, it is empirically untenable.

7.4. The climate-leadership argument

The fourth argument is that the European Union must demonstrate leadership to bring other major emitters to follow. This claim has now had three decades to produce evidence; it has produced none. Global emissions are up by approximately two thirds since the Rio Summit. The EU share of global emissions has fallen from 15 per cent to 6 per cent, not because the Union has been a successful leader but because the rest of the world has grown around it. The notion that China, India or the United States await Europe’s example before adjusting their own energy policies is contradicted by every available piece of evidence on actual energy decisions in those countries. The leadership argument is not an empirical proposition; it is a piece of self-flattery that the European political class repeats because it lacks a better justification.

7.5. The carbon-leakage and CBAM argument

The fifth argument is that the Carbon Border Adjustment Mechanism (CBAM) protects European industry from carbon leakage and therefore allows the ETS to function without competitive damage. The argument is empirically weak. CBAM covers a limited set of inputs (cement, iron and steel, aluminium, fertilisers, electricity, hydrogen) in their direct form, but does not capture the embodied carbon in finished goods that incorporate these inputs at later stages of the value chain. A European producer of automobiles, machinery or chemicals using imported steel will face a CBAM levy on the steel; a competitor importing the finished car or machine faces no equivalent charge. Carbon leakage therefore shifts up the value chain to the products in which the European Union still has competitive industrial capacity – which is precisely where the loss matters most for prosperity and employment.

CBAM also generates significant trade-policy friction. Major partners (China, India, Brazil, South Africa, Russia, Turkey) have already raised objections at the World Trade Organization and have signalled retaliatory measures. The administrative burden – with importers required to verify the carbon content of their inputs and to surrender certificates – is heavy and disproportionate for small and medium enterprises. Most significantly, CBAM revenue is now being claimed by the European Commission as an “own resource” of the Union budget, which entrenches the underlying ETS as a permanent fiscal mechanism.

8. Path Dependence and the Closing Window for Reform

The argument that the ETS should be reformed, but not now – that it can be revisited once the system has stabilised – ignores the political economy of established fiscal institutions. The longer the ETS operates, the harder it becomes to dismantle. Three dynamics make 2026 a critical moment for the decision to withdraw.

First, ETS2 enters into force on 1 January 2028 with full compliance obligations from that date. Once heating fuels and road-transport fuels are inside the system, fuel suppliers across the Union will have built compliance, monitoring and reporting infrastructure; verification firms will have hired staff; national administrations will have created units to manage the revenue and the Social Climate Fund. Each of these constituencies will lobby against withdrawal. The cost of unwinding the system grows non-linearly with the duration of its operation.

Second, the European Commission has proposed, and the institutions are progressively adopting, the integration of ETS revenue into the Union’s system of own resources. The legal proposals of December 2021 and June 2023 propose that a share of ETS auctioning revenue and the entirety of CBAM revenue flow directly to the EU budget. Once that integration is complete, the financing of Union expenditure programmes will be structurally dependent on the continuation of carbon pricing. Withdrawal will then require not only the dismantling of the ETS but the identification and adoption of an alternative source of own resources, with all the political difficulties that entails.

Third, the Social Climate Fund, financed by ETS2 auctioning, is designed to create a permanent constituency of household beneficiaries in every Member State. The fund is to disburse EUR 86.7 billion between 2026 and 2032. National administrations will, by construction, have an incentive to defend the source of revenue that finances visible social transfers. A reform attempted in 2030 or later will face this entrenched coalition – beneficiary households, national administrations, financial intermediaries, the climate-finance professional services industry, the Union budget itself – in addition to the structural constituencies analysed in Section 4.

The analogy with the Common Agricultural Policy is instructive. Adopted in the early 1960s for sound contemporaneous reasons, the CAP has been criticised on efficiency, equity and environmental grounds for at least four decades, has been repeatedly reformed at the margin, and has never been fundamentally abandoned because each successive cohort of beneficiaries has built sufficient political capacity to resist withdrawal. The ETS is on the same trajectory. If it is not withdrawn before 2028, it will, on every reasonable political-economy projection, still be in operation in 2050.

9. The Heating Penalty and the Case for Withdrawal

The case for withdrawing the EU Emissions Trading System rests on four pillars that, taken together, are difficult to refute.

The most acute political vulnerability of the system lies in the extension scheduled for 1 January 2028. ETS2 will impose a carbon price on the heating fuels that European households use to keep their homes warm. This is a category of expenditure that policymakers in Brussels and the climate-finance industry too easily overlook. The European Union is not the Mediterranean basin. From Tallinn to Vilnius, from Helsinki to Stockholm, from Warsaw to Prague, from Berlin to Brussels, from Vienna to Bucharest, the heating season runs for six to eight months a year, and in the northern Member States it never truly ends. Heating degree days exceed five thousand in Helsinki, approach five thousand in Stockholm, exceed three thousand in Warsaw, Berlin and Vilnius, approach 2,500 in Paris and Brussels, fall below one thousand five hundred in Rome and below one thousand one hundred in Athens. A policy designed in offices that are heated for free by the European budget will be experienced very differently in a working-class apartment in Łódź, in a rural household in eastern Finland, in a pensioner’s flat in the suburbs of Düsseldorf, or in a family home in the Belgian Ardennes.

Heating, in this geography, is not a discretionary consumption choice that policymakers may attempt to discipline through a price signal. It is a vital necessity, comparable to food in its irreducibility. Roughly half of the European Union’s final energy consumption is devoted to heating and cooling, and the overwhelming part of that is heating; approximately three quarters of European home heating is currently provided by fossil fuels – natural gas, heating oil, coal in some regions, and wood and biomass, often in older boilers that cannot be replaced overnight. The transition to electric heat pumps, regularly invoked by the architects of ETS2, is technically feasible in well-insulated buildings in moderate climates, but it is neither feasible nor affordable in the older housing stock that dominates much of Central, Eastern and Northern Europe. To impose, on this housing stock, a carbon price that adds several hundred euros per year to a heating bill is not an environmental policy. It is a regressive levy on the most basic necessity of life in a cold climate, imposed on the populations least able to insulate themselves from it – literally and financially.

Some forty million Europeans were already unable, in 2023, to keep their homes adequately warm, a figure that grew sharply during the 2022 energy crisis and has not returned to pre-crisis levels. These are not abstract statistics. They are pensioners in Warsaw turning the thermostat down to fifteen degrees and putting on a second pullover; single parents in Brussels stretching the heating bill across four winter months; rural families in Romania burning whatever combustible material they can find; elderly couples in the German countryside choosing between heating the living room and heating the bedroom. To inform these households that, from January 2028, the European Union has decided to add a carbon price to their heating fuel – a price designed precisely to discourage them from heating – is not climate policy. It is, in any honest understanding of the term, an inadmissible penalty on the most vulnerable populations of the continent. The argument that the Social Climate Fund will compensate them is unconvincing on its face: a fund of EUR 86.7 billion over seven years cannot offset a levy that will, over the same period, extract several hundred billion euros from the heating bills of European households. And even if the redistribution were arithmetically complete, it would still constitute a transfer designed in Brussels, dispensed by national administrations on bureaucratic criteria, and conditioned on compliance with policies that the recipients did not vote for.

There is something profoundly absurd in the spectacle of the European Union, founded to deliver peace and prosperity to its citizens, deliberately taxing the fundamental human need to keep warm in winter. Even the most ideologically committed defenders of the Green Deal should pause before this. To tax it is not to internalise an externality; it is to impose, by administrative decision, a deliberate worsening of living conditions on populations that have done nothing to deserve it and that, in the global context analysed in Section 6, cannot do anything to alter the trajectory of atmospheric CO₂ concentrations.

The political evidence of what such a policy will produce is already in plain view. The gilets jaunes in France in 2018, the Dutch farmers’ protests of 2022 and 2023, the German backlash against the Gebäudeenergiegesetz, the agricultural protests that swept the continent in early 2024, the rise of openly Eurosceptic political forces in Member States that have hitherto been pillars of the Union – all of these are symptoms of the same underlying phenomenon. They are the response of ordinary European citizens to a project that they perceive, with increasing clarity, as having shifted from the delivery of prosperity to the administration of austerity in the name of distant goals that do not concern them.

When the first heating bills of winter 2028 arrive, the political responsibility will be assigned, correctly, to the European Union. The credibility of the Green Deal will not survive that winter. The credibility of the Union itself may not survive a sustained programme of visible, household-level taxation of the most basic necessity of life in northern, central and eastern Europe. Seven decades of patient construction cannot be put at risk for a policy that, as Section 6 has shown, will have no measurable effect on global emissions. The defenders of the system in Brussels and in the climate-finance industry must understand that they are not defending the climate; they are defending a revenue stream, and they are doing so at the price of dismantling, through their own actions, the European edifice.

Mitterrand understood in 1991 what would happen if France’s energy policy were decided in Brussels. He refused. The Member States that accepted the shared competence in 2007 did so on the strict condition, written into Article 194(2) TFEU, that the choice between energy sources would remain sovereign. That condition has been breached. The Member States retain the legal right, and now the political duty, to demand the reconsideration of the system before ETS2 enters into force and before the integration of ETS revenue into the Union’s own resources renders withdrawal politically and administratively impossible.

 

 

The author writes here not as a lobbyist or a consultant, but as someone who served with passion for thirty-six years in the Directorate General for Energy of the European Commission, until his last day of service, out of conviction in the European project. It is precisely from that long-held conviction that the case for withdrawal is made: the European Union will not preserve its cohesion by impoverishing its citizens; it will preserve its cohesion by restoring affordable, abundant and secure energy as the foundation of European prosperity. Such was the design of the Founding Fathers of the European Union, as declared at the Messina Conference of 1–3 June 1955.

[1] Samuel Furfari, The Truth about COPs. Thirty Years of Illusions, KDP, 2025.

 

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