A new study by the Centre for European Policy (CEP) has concluded that introducing a binding minimum price for CO₂ emissions could slow down rather than accelerate the decarbonisation of European industry.
As the European Commission prepares the next reform of the EU Emissions Trading System (ETS), the German think tank warns that such price interventions may produce unintended consequences that harm investment in key climate-friendly technologies.
The report highlights the complex interactions between the EU Emissions Trading System (ETS) and electricity markets. It finds that a binding CO₂ floor would trigger a sharper long-term rise in power prices, placing upward pressure on emission abatement costs — particularly for electricity-intensive sectors such as steel and chemicals.
As a result, the policy could prove “ineffective and potentially even harmful” for creating investment incentives in decarbonisation pathways unless accompanied by permanent energy cost compensation schemes.
“Intervening into one market creates the need for complementary interventions in others,” the study notes.
“This would not only add another layer of complexity to the EU climate policy architecture. It would also undermine the role of energy price signals for achieving a cost-efficient management of the energy system.”
In his analysis, CEP energy expert Dr André Wolf shows that attempts to impose a floor on CO₂ prices tend to drive up electricity costs across the market.
Higher power prices, in turn, worsen the economic case for decarbonisation technologies such as electrification, hydrogen, and carbon capture.
“Attempts to intervene into price formation in the EU ETS risk rising electricity prices and thus poorer investment conditions for key decarbonisation technologies,” Wolf states.
The report comes amid growing calls in Brussels and national capitals for greater certainty in the carbon market to encourage long-term investment.
Proponents of a minimum price argue it would reduce volatility and provide a predictable signal for industry.
However, CEP’s model-based study highlights the complex interdependence between CO₂ and electricity markets, suggesting that direct price controls could backfire by increasing overall energy costs and delaying the green transition.
Instead of market intervention, the study recommends targeted, decentralised instruments such as Carbon Contracts for Difference and Green-Lead markets.
These mechanisms would share risks between investors, governments, and market players without distorting the core ETS price signal.
CEP also stresses the need for a stable regulatory framework and greater support for technologies that increase energy system flexibility and reduce reliance on fossil-based power generation.
Poland’s opposition Conservatives (PiS) have submitted a resolution to the country’s parliament calling on the government to start the process of leaving the European Union’s Emissions Trading System (ETS) https://t.co/81t2mAurOY
— Brussels Signal (@brusselssignal) March 17, 2026
