Ursula von der Leyen has urged EU member states to significantly increase the share of carbon pricing revenues reinvested into industrial decarbonization, defending the bloc’s carbon market while acknowledging mounting pressure from emissions-intensive sectors.

Speaking at an industry conference, the European Commission President highlighted a stark imbalance in how revenues from the EU’s carbon pricing system are deployed. While 100% of revenues generated at the European level from the EU Emissions Trading System are reinvested into industrial innovation and climate programs, less than 5% of revenues collected at national level are currently directed toward industrial decarbonization.

She indicated that correcting this imbalance will be central to the upcoming reform of the ETS later this year.

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ETS Under Scrutiny Amid Competitiveness Concerns

Established in 2005, the ETS places a price on carbon emissions across key greenhouse gas-intensive sectors, including power generation, oil refining, steel, cement, chemicals, paper and commercial aviation. In 2023, the EU expanded the system through the introduction of ETS2, which will extend carbon pricing to fuels used in road transport and heating buildings. Although originally planned for 2027, ETS2 is now expected to be delayed until 2028 as part of broader negotiations linked to the EU’s 2040 climate target.

Von der Leyen’s remarks come at a time of increasing criticism from industry groups and several member states. Companies have raised concerns over carbon price volatility, rising compliance costs and the risk of carbon leakage, where production shifts to jurisdictions with weaker climate policies.

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Decarbonization and Growth “Can Go Hand in Hand”

Defending the system, von der Leyen pointed to data showing that emissions in sectors covered by the ETS have fallen by 39% since its launch, while those same sectors recorded economic growth of 71% over the same period. She argued that the figures demonstrate that climate ambition and competitiveness are not mutually exclusive.

However, she stressed that the credibility and fairness of the system depend on ensuring that revenues generated from industry are reinvested back into industrial transformation.

Calling on member states to “step up and match” the EU-level commitment, von der Leyen stated that channeling more ETS revenues into decarbonization projects will be a core element of the summer reform package.

As Europe pushes toward deeper emissions cuts and industrial electrification, the debate over how carbon pricing revenues are recycled is likely to become central to balancing climate ambition with economic resilience.

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