Energy sector in transition - Aligning EU ETS, climate ambitions and investment realities

The EU’s increasing climate ambitions and upcoming revision of the Emissions Trading System (EU ETS) mark a critical phase for Europe’s energy sector. Achieving the EU’s 2040 climate target will require significant investments in power generation, networks, flexibility and district heating. Stable regulation and adequate financial support are essential to ensure security of supply, affordable energy prices for households and European industry, and a just transition.This debate will address one of the EU’s most pressing challenges – restoring competitiveness. Reducing energy prices was a central topic at the European Council in March 2026, which highlighted the need for reforms that take into account the different situations across Member States. In this context, the EU ETS revision should reduce carbon price volatility and mitigate its impact on electricity prices and related costs. At the same time, growing competitiveness challenges have led many Member States and organisations to call for easing the ETS framework to reduce its negative impact on energy prices and industrial competitiveness.On the anniversary of the Antwerp Declaration (11 February), European industry highlighted the increasingly challenging conditions, primarily due in their view to restrictive climate policies and the high costs associated with them. The importance of system stability and predictability has also been emphasised by Member States within the “Friends of Industry” initiative. Their statement adopted on 26 February stressed the need to limit excessive volatility in allowance prices and to maintain mechanisms supporting investments in low-emission technologies while safeguarding the competitiveness of European industry.As the EU ETS strongly influences investment decisions in energy and district heating, improving market predictability and transparency is crucial. This includes limiting speculation, strengthening stabilisation mechanisms such as the MSR, and ensuring sufficient allowance supply for 2031–2040 and beyond, if needed. Integrating international carbon credits and addressing the issue of peaking electricity units' operating costs under the EU ETS are also important. Maintaining free allocation of ETS allowances after 2030 for district heating, serving around 70 million Europeans, is considered essential by some stakeholders.Moreover, in many Member States, especially in Central and Eastern Europe, public support and access to EU funding will be essential to keep the decarbonisation of electricity and heating feasible and affordable for households and businesses. Therefore, there is a growing consensus that the Modernisation Fund must further facilitate the just transition of almost half of the EU's countries beyond 2030. These Member States argue that the size of the Fund should be increased to reflect the scale of investment needs for the broader energy transformation, including electricity networks, dispatchable generation capacity, system flexibility, and district heating modernisation.With key policy decisions approaching, the ongoing discussions on the future of the EU ETS are particularly timely, as they will shape investment conditions, energy prices and the pace of the energy transition in the years ahead. Join this Euractiv Hybrid Conference to discuss how the EU can support a predictable and affordable transition in the energy sector as part of the upcoming revision of the EU ETS.