ETS: delayed responses, a cautious approach and key demand
Four parliamentary responses in three days, ranging from the ‘technical’ minister to the Prime Minister himself, and one constant: when it comes to reforming the European carbon market, Luxembourg is playing for time, whilst quietly pushing a key point regarding industrial exports.
Four parliamentary questions tabled between late February and early March received their answers… on 24, 27 and 28 April. A delay of nearly two months that reflects the government’s stance: on the reform of the European Emissions Trading System (ETS), the pace is still being set in Brussels.
The calibre of the signatories underscores the sensitivity of the issue. In response to a technical query from the Minister for the Environment, Climate and Biodiversity, Serge Wilmes (CSV), in addition to the quotas allocated to ArcelorMittal, there are joint responses co-signed with the Minister for the Economy, Lex Delles (DP), as well as a more strategic response from the Prime Minister, Luc Frieden (CSV), from the Minister for Foreign Affairs and Foreign Trade, Xavier Bettel (DP); the Minister for the Economy, SMEs, Energy and Tourism and the Minister for the Environment, Climate and Biodiversity. This structure reflects a fully interministerial approach to management.
In substance, the government’s stance remains unchanged. The government reaffirms that the ETS is “a key pillar of climate policy” and forms part of the goal of carbon neutrality by 2050. This position is in line with the European framework set out in the “Fit for 55” package, which provides for a 62% reduction in emissions from the sectors covered by 2030. But very quickly, the focus shifts to industrial competitiveness. European industries are under “severe pressure”, linked in particular to energy costs and international competition deemed to be unbalanced. In this context, strengthening the Carbon Border Adjustment Mechanism (CBAM) appears to be a priority to ensure a level playing field.
Support for responsible European exporters?
It is within this context that one of the few truly transformative measures put forward by Luxembourg is situated. The government emphasises that the reform must ‘promote long-term structural solutions for industrial competitiveness’, particularly in the context of exports. Implicitly, this points to an unresolved issue within the European framework: whilst the MACF addresses imports, it does not cover exports, leaving European manufacturers exposed on international markets.
This issue also explains the position taken on free allowances. The government considers them to be a ‘transitional instrument’ which may need to be retained to avoid the risk of ‘carbon leakage’ until the corrective mechanisms have proven their effectiveness. In the strategic response, this rationale is explicitly linked to exports, with free allowances to be maintained ‘in the context of exports’ until the MACF is fully operational.
With regard to the functioning of the market, Luxembourg emphasises the need to maintain a credible carbon price signal whilst improving its transparency. The government is therefore calling for ‘greater regulatory stability’ and predictability in carbon pricing, which it considers essential for long-term industrial investment.
The issue of the system’s unintended consequences is also addressed. Free allowances must be ‘strictly regulated and made conditional on concrete decarbonisation efforts’, with strengthened monitoring mechanisms and greater transparency. At the same time, the government plays down the risk of windfall profits, pointing to the existence of a €500 million support scheme for the period 2021–2030 to offset the additional costs associated with the ETS.
Pending an impact assessment
Even the most technical responses reflect this caution. Regarding the valuation of the allowances allocated to ArcelorMittal, the government stresses that an overall estimate ‘would inevitably result in very rough estimates’, due to the volatility of carbon prices.
Taken together, these four responses form a coherent picture. Luxembourg advocates maintaining a robust ETS, whilst seeking to mitigate its impact on industrial competitiveness. However, it does not propose any specific structural reforms or an alternative timetable on the key issues. The government explicitly acknowledges this: it is awaiting “a proposal for legislative revision, accompanied by an impact assessment […] by mid-2026” in order to “finalise its position”.
In this context, one thing is certain. Whilst the system’s architecture has already been established at European level, its parameters remain open. The carbon price, the pace at which free allowances are phased out, the link with the MACF, and the treatment of exports will all be subject to future decisions.
