22 July 2026

ETS reform and new electrification goals show how industrial policy keeps crowding out environmental goals.

Last week, the European Commission published its proposal to reform the ETS (the CO2 emissions trading system). As the negative reactions demonstrate – both from those calling for a serious overhaul and from those who think it should be made even more ambitious – European policymakers have attempted to have it both ways. In essence, it has made the system more complicated without reducing its costs or increasing its effectiveness.

Whilst much of the discussion has focused on technicalities, the most important news is something else: alongside the ETS, the Commission has introduced a new target – for now merely ‘indicative’ – relating to electrification. By 2040, 46 per cent of final energy consumption in the European Union is to be electrified (we are currently at around 23 per cent). It is undisputed that electricity will play an increasing role in our economy; it is also undisputed that this will promote efficiency and decarbonisation. What is far from undisputed, however, is that electrification should constitute a target in its own right. The rate at which traditional technologies are replaced in sectors such as transport and buildings depends on a variety of factors, including economic trends, demographics, technical progress and consumer preferences. No one can know what the world will be like in fifteen years’ time (in 2040) and beyond. And, above all, no one can know whether – in the light of future developments – the most effective combination for reducing CO₂ emissions will actually be the one envisaged by the Commission.

Let’s summarise briefly: alongside a strictly environmental target (a 55 per cent reduction in emissions by 2030, 90 per cent by 2040 and net zero by 2050) the EU has introduced a target for renewables (42.5 per cent of final energy consumption by 2030), one on efficiency (reducing consumption by 11.7 per cent below the 2020 projections by 2030) and, now, one on electrification. In addition, there are various sub-targets: reducing emissions from light and heavy vehicles, the energy performance of buildings, hydrogen, waste reduction and so on. This proliferation of more or less binding targets (which is systematically followed by a flurry of subsidies, taxes, obligations and bans) is causing the costs of decarbonisation to skyrocket, as we have argued in a previous Epicenter paper.

The debate has centred on the ETS, which is the most visible element and therefore the weak link in the Green Deal. Yet it is also its most efficient component, because it simply sets a price on emissions, leaving it to the market to find a way to reduce them at the lowest possible cost. Any further constraints have two consequences: on the one hand, they entail the use of resources that are potentially disproportionate to the outcome (for example, Italy’s tax credits for house retrofitting and subsidies for rail transport; on the other, prioritising potentially more expensive investments ends up undermining the ETS’s price signals, turning it into an unpalatable levy that is perceived as unfair because it is merely an additional burden.

Not only does this make decarbonisation more costly: it throws it to the wolves of interest groups vying to secure the incentive or regulation that best suits their interests, and contributes to the delegitimisation of environmental objectives in the eyes of an increasingly weary public.

This blog post is a translation of the Istituto Bruno Leoni blog ‘Riforma ETS e nuovi obiettivi di elettrificazione: quando la politica industriale distrugge gli obiettivi ambientali'. Istituto Bruno Leoni is the Italian member of EPICENTER.