EU ETS & CO₂-pricing - how do companies get rising CO₂-costs under control?

Reading time: 9 minutes

May 20, 2025

Earth in clouds with 'COST' text overlay

Carbon dioxide is one of the greenhouse gases released by human activities and is considered to be the main cause of global warming. The CO₂-price (also known colloquially as CO₂-tax) and the European Emissions Trading System (ETS) aim to reduce the climate impact of CO₂ by creating incentives for companies to reduce their emissions. How do these systems work? And what levers do the companies concerned have to master the balancing act - between climate protection requirements and the need to operate economically?

The most important facts in brief:

The European Emissions Trading System EU-ETS 1 has been in force since 2005, which regulates the emissions of energy-intensive companies and the energy industry through certificate trading in accordance with the cap and trade principle
In addition, the 2021 CO₂-pricing (also CO₂-tax) for fossil fuels and regulated by the Fuel Emissions Trading Act (BEHG)
Both systems are to be merged with the introduction of the EU ETS 2 from 2027
Around 75 % of energy demand in industry is required for heat
Through intelligent efficiency and substitution measures, such as the use of modern energy-flexible hall heating systems, companies can reduce their CO₂-greatly reduce consumption and cut costs considerably

How does the ETS work?

The European Emissions Trading System (EU-ETS) has been the central climate protection instrument of the EU and the three other nations Norway, Iceland and Liechtenstein (27+3) since 2005. It has also been linked to Switzerland's emissions trading system since 2020. The aim is to reduce CO₂emissions and other greenhouse gases and at the same time achieve a steering effect towards climate-friendly technologies. This is done in accordance with the cap and trade principle by defining an annually decreasing upper limit for emissions (cap) and issuing this to companies in the form of tradable emission allowances (EUA - European Union Allowances) (trade). The EU ETS is transposed into national law within the framework of NAPs, i.e. national allocation plans (allocation plans).

Cap (upper limit): Since 2013, the European Union has set an annual cap on the total greenhouse gas emissions that may be emitted by companies subject to emissions trading. This cap is lower than the actual volume of emissions and is gradually reduced over the years. The current plan is to reduce the permitted emissions volume by 2.2 percent each year.
emission allowances (EUA - European Union Allowances): This upper limit (cap) is allocated by the European Union in the form of tradable emission rights (also known as pollution rights or emission allowances) to companies subject to emissions trading, which then use them for every tonne of CO₂ have to redeem. In other words, for every tonne of CO₂that a company emits, it needs a certificate. The majority of these CO₂-certificates is allocated by auction, while the EU provides a smaller proportion free of charge. The number of certificates required per company has so far been determined by "grandfathering". This calculates the amount of energy that the company has consumed up to the current point in time or that is absolutely necessary for this company. The company must then purchase additional certificates for the portion that could be saved through modernization.
TradeTraded (EU ETS or BEHG) are unredeemed certificates from companies and a general free quota. This means that companies whose emissions are below the allocated quantity can sell their surplus allowances on the secondary market. Buyers are the companies that produce more emissions than the allowances allocated to them. As the quantity of allocated emission allowances (EUAs) is reduced each year in European emissions trading, the incentive to make savings increases. For example, the number of allowances auctioned in 2024 fell to 85 million compared to 92 million in 2023.

The EU ETS therefore works according to the market principle, i.e. the price for CO₂-certificates is determined by supply and demand. In economic terms, the emission certificates are a new scarce commodity was launched on the market, which Production factor can be used in the manufacture of products or resold on the market. The lower the upper limit (cap), the more limited and expensive the certificates become. This creates a financial incentive to reduce emissions. In addition, the market prices for certain products can become more expensive, which can also lead to even more economical use of climate-damaging products.

nEHS in Germany - the CO₂-Price

The CO₂-Carbon pricing is generally an environmental policy measure that puts a price on carbon dioxide (CO₂) emissions through a levy on fossil fuels such as petrol, diesel, heating oil, natural gas or coal. Here too, the aim is to reduce greenhouse gas emissions by creating financial incentives to switch to more climate-friendly alternatives such as renewable energies or energy-efficient technologies. Across Europe, there is a CO₂-pricing in 20 countries to date. Finland and Poland were the pioneers, introducing this climate protection instrument back in 1990.

Since 01.01.2021, Germany has been a CO₂-emissions trading system (nEHS) for sectors not covered by EU emissions trading (i.e. transport, construction and agriculture), thereby transposing the NAP into national law. This is regulated by the Fuel Emissions Trading Act (BEHG). Since 2024, it has also covered CO₂-emissions from waste incineration plants. As a result, a so-called CO₂ price also applies to road traffic and heating. Since its introduction in 2021, CO₂-prices in Germany will increase annually. They were initially defined as fixed prices (2021 to 2025), but will then be replaced by trading certificates in a price corridor from 2026. This is expected to be between €55 and €65 per certificate. From 2027, however, this system is to be completely replaced by the new EU ETS 2.

*Note: For 2026, the transition to certificate trading in the price corridor of EUR 55 to 65 per tonne of CO₂is planned. From 2027, the merger with the EU ETS 2 and the introduction of free certificate trading on the market is planned with prices that could range between €70 and €340 per certificate, according to experts. In this chart, € 200 per certificate and tonne of CO₂ assumed. (Source: KÜBLER GmbH Energiesparende Hallenheizungen)

Who is affected by EU ETS and CO₂-pricing?

Companies are either subject to emissions trading - EU ETS or CO₂-pricing (BEHG) - or can join the voluntary emissions trading scheme. The EU ETS applies to all 27 member states of the European Union. Norway, Iceland and Liechtenstein (27+3) have also joined. Great Britain and Northern Ireland participated in the EU ETS until December 31, 2020 (Brexit). The first phase of the EU ETS 1 covers emissions from around 9,000 installations in the energy sector and energy-intensive industry with a thermal output of more than 20 megawatts. Together, these installations cause around 40 % of greenhouse gas emissions in Europe. According to Annex 1 of the EU Emissions Trading System (EU ETS), this includes in particular

Power plants
Mineral oil refineries
Iron and steel smelting
Cement and lime production
Glass, ceramics and brick industry
Paper and cellulose production
Intra-European air traffic (since 2012)
Maritime transport (since 2024)

While the number of installations is distributed almost one-to-one between the industrial and energy sectors, energy installations are responsible for around three quarters of emissions. Around half of the energy plants are large combustion plants, i.e. power plants, combined heat and power plants and heating plants with a rated thermal input of over 50 MW. These plants are responsible for over 98 percent of emissions in the energy sector. The "big four" energy suppliers, namely RWE, Vattenfall, E.ON and EnBW, are the main operators of large combustion plants in Germany.

What Germany and the CO₂-pricing, the obligation to surrender emission allowances generally lies with the so-called "distributors", i.e. the companies that sell diesel, petrol etc. in Germany for the first time (upstream approach). In turn, this nEHS mainly affects mineral oil traders, liquid gas traders, natural gas and heat suppliers, coal suppliers and coal users as well as importers and refineries.

In order to avoid double burdens, the interaction between the CO₂-tax and the EU ETS in Germany in such a way that the costs of CO₂-tax does not have to be additionally passed on to EU ETS plant operators.

What do EU ETS and CO₂-price in common? Where are the differences?

CO₂-tax and the EU ETS are different mechanisms for CO₂-regulation. Both systems aim to reduce CO₂-emissions. The overlaps between a CO₂-The main difference between carbon pricing and the EU Emissions Trading System (EU ETS) lies in their common objective: combating climate change. Both mechanisms price CO₂-emissions and thus create incentives to reduce emissions. However, there are also differences, particularly in the way in which the CO₂-price is set and which sectors are covered. Under the EU ETS, the price for CO₂ formed on the market, while the price for CO₂-tax is set by the state.

Perspective: How expensive will EU ETS and CO₂-pricing?

From 2027, a new independent emissions trading system, EU ETS 2, will be introduced as part of the Fit for 55 package. It applies to emissions from road transport, buildings and industrial and energy facilities that are not covered by EU ETS 1 due to their size. Pricing is comparable to the existing national emissions trading scheme (nEHS) introduced in 2021 via the upstream approach. The allowances are auctioned in full, the CO₂-prices are thus formed on the carbon market. Germany has so far envisaged a cap of between 55 and 65 euros, while 45 euros is being discussed at EU level, with critics pointing to the lack of a steering effect. Other forecasts predict much higher prices. Experts are predicting a price corridor of EUR 70 to 340 per certificate at the start of EU ETS 2.

CO₂-Costs & efficiency from 2027 - a practical example*

Comparison table of energy consumption and CO2 emissions

The EU Commission is currently discussing plans to introduce the "Clean Industrial Deal". The comprehensive package of measures aims to make the European economy more competitive and climate-friendly at the same time. The package for clean industry focuses on four key areas:

Helping energy-intensive sectors in particular with the transition
More green technologies from the EU
Reducing bureaucratic hurdles
Funding of up to 100 billion euros

Conclusion: Overall, the level of future CO₂-We can only speculate at the moment about what this will mean in concrete terms for commercial and industrial companies. One thing is clear: from 2027, the CO₂-pricing even more international and dynamic. Further adjustments could follow from 2030, tightening the regulatory framework. What's more, due to the ambitious climate targets in Germany and the EU, companies will be faced with higher CO₂-reduction must be expected.

What opportunities do companies have to reduce CO₂-save costs?

The good thing about CO₂tax: Politicians are thus providing real incentives to make more energy efficiency, the use of climate-friendly energy sources and the development of innovative products attractive to companies and consumers. As a company or consumer, you decide for yourself: Does it make more sense for you to pay the CO₂-tax or counteract the increase in costs with appropriate measures? Our tip: try to achieve your goals with as little energy as possible and consider using renewable energies in the long term. This will benefit both sides: the climate and your company. Below we give you examples of how you can reduce CO₂-levies with a clever strategy as a steering instrument for sustainability and efficiency.

Invest and benefit from energy efficiency

Accounting for around 75 % of energy consumption in many industries, heat offers the greatest leverage for reducing energy and costs. Energy-efficient hall heating systems such as the Fair.AIdH technologies (e.g. FUTURA, ELEXTRA) in combination with smart control systems (e.g. CELESTRA) has been proven to reduce energy consumption by up to 70 % and more. Given the high levels of consumption in industry, this also significantly reduces the burden on companies and the environment. The changeover is often easier than expected and can usually be implemented during operation.

Switch to renewable energies

High-quality hall heating systems have a service life of 20, 30 years and more. Rely on energy-flexible technologies now so that you can switch to renewable energies such as PV electricity or hydrogen at any time when you invest in a new heating system. The good thing is: with these systems, you can already use the most cost-effective energy sources today and also use them in the mix. This ensures that you can easily meet the requirements for climate neutrality by 2045 (Germany) or 2050 (EU) without jeopardizing the profitability of your company. At the same time, you open up the path to energy self-sufficiency.

Renting instead of investing - why it pays off

Every day that outdated hall heating systems continue to operate represents an excessive cost and environmental burden. Many decision-makers are aware of this and the renovation backlog is well known, yet there are numerous business reasons for repeatedly postponing heating modernizations. However, a solution to this dilemma is less well known: a smart rental model called Heating plant. This rental model is economically interesting for companies in two respects:

No investment
No amortization expense
Up to 20 % total cost reduction depending on the system

This is due to the efficiency of the modern technologies used. The amount of energy costs saved usually exceeds the rental fee and ensures lower heating costs overall. Those who are unable or unwilling to invest but still want to benefit from modern efficiency technologies for heating production halls and warehouses and thus avoid the additional costs caused by CO₂-If you want to reduce your heating costs, HeizWerk is a good choice.

Conclusion: Start now to reduce CO₂-emissions of your company!

Even if many things are still open at the moment due to the change of government in the USA and Germany and some EU decisions are still pending, companies should develop strategies in good time in order to be cleverly and securely positioned for the future. Get an overview of your savings potential and reduce CO₂-emissions and energy consumption. Modernizing heating systems with energy-flexible systems (Fair.AIdH technologies) opens up great potential for savings, especially in hall buildings. This not only compensates for high energy prices, but also increases the profitability and future security of your business. You are welcome to calculate with the free CO2 calculator and get an initial assessment of where and how you can still reduce!

Sources:

Everything you need to know about energy-saving hall heating systems in practice

Saving energy is a big issue - across all sectors. If you want to put an end to inefficient heating systems, our guide is just right for you!

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EU ETS & CO2-pricing - how do companies get rising CO2-costs under control?

The most important facts in brief:

How does the ETS work?

nEHS in Germany - the CO2-Price

Who is affected by EU ETS and CO2-pricing?

What do EU ETS and CO2-price in common? Where are the differences?

Perspective: How expensive will EU ETS and CO2-pricing?

CO2-Costs & efficiency from 2027 - a practical example*

What opportunities do companies have to reduce CO2-save costs?