The world has changed dramatically since 2005. A prime example? Those who were around back then may remember the first BlackBerrys, but had no idea what a smartphone was. Today’s events remind us that 2005 also marked the launch of the European emissions trading market, the ETS mechanism. After more than two decades since its introduction, it is reasonable to ask whether ETS is still suited to today’s context and whether it remains an effective tool for incentivising Europe’s decarbonisation. The debate over its revision, already scheduled for this summer, is well-founded: markets change, technologies advance and policy instruments must evolve too.
ETS has not stayed unchanged since 2005. It has evolved over time, expanding its reach to new sectors, and the European model has served as an inspiration for other countries. Over the past twenty years, it has undergone numerous regulatory interventions that have progressively updated its functioning. At least three structural reforms have been implemented, alongside the introduction of the Market Stability Reserve, which has a direct impact on the stability of the system.
What would be risky, however, is to turn this discussion into a broader delegitimisation of the energy transition itself. The current international context highlights the importance of staying on a strategic course: reducing dependence on fossil fuels while strengthening European industrial competitiveness.
In this context, ETS has made an undeniable contribution to the increasing adoption of renewables and the reduction of industrial emissions. This is not merely a matter of emissions’ calculations, but rather about Europe’s ability to position itself within the global clean technology supply chains in a world shaped by aggressive industrial policies, from China to the United States, without forgetting the role of numerous emerging economies. Updating ETS may be necessary, but weakening the economic signals that guide investment towards decarbonisation risks slowing down the transformation of our economies.
For Italy, this challenge intersects with a structural delay in moving away from fossil fuel dependence – a delay it continues to pay dearly for, as recent events in the Middle East have shown. This is no longer just another wake-up call, but a deafening alarm that we largely continue to ignore. In this sense, it is shocking to discover that Italy has used just 9% of the proceeds from ETS auctions, resources that, according to Brussels guidance, agreed by all Member States, should have supported the transition, yet remain largely unused.
Even in the short term, fossil fuel dependence and the resulting vulnerabilities can be decreased. For example, with political will, Italy could replace LNG imported from Qatar – currently accounting for around a quarter of Italy’s liquefied gas imports – with renewables and efficiency measures, tackling both consumption and renewable production. Simply switching suppliers, instead, would expose the country to new vulnerabilities.
The crux of the matter is industrial. Competitiveness depends on the ability to innovate, that is, adopting more efficient technologies. A significant share of Italian industrial processes – particularly those operating at medium to low temperatures – can already be electrified today. However, the structure of energy taxation and system charges continues to penalise electricity compared to fossil fuels, reducing the incentive to invest.
This paradox fits into a broader picture: while other countries invest in transition technologies, Italy is at risk of becoming a market for outdated, fossil fuel-based technologies. A “junk market” for 20th-century technologies, undermining the competitiveness of Europe’s second-largest manufacturing nation.
The transition also represents an opportunity to implement redistributive policies. European instruments – including ETS revenues and the forthcoming ETS2 – provide substantial resources to support households and businesses. If used wisely, these funds could strengthen purchasing power and direct it towards more efficient technologies: electric mobility, domestic heating and the electrification of industrial consumption.
Looking ahead, the European debate on ETS will intensify in the coming months. We can discuss how to improve it, but it is essential to maintain consistency on the objectives: regulatory stability, clear price signals, accelerating renewables and investment incentives. The Commission’s recent proposal to revise the Market Stability Reserve would appear to be a step in this direction. It is, in fact, a significant yet targeted adjustment, which will update the ETS mechanism while leaving its functioning and central role as a decarbonisation tool intact.
In Italy, the debate will intersect with the start of the 2027 general election campaign, which many observers believe has already begun following the outcome of the constitutional referendum on the justice system. There is a risk that the transition will be exploited for political ends, blaming Europe for outcomes that largely stem from national choices.
The international context remains – and in all likelihood will continue to remain – highly unstable. Tensions in the Middle East and the ongoing conflict in Ukraine are not isolated events, but a reflection of a structural dependence on fossil fuels. Prolonged geopolitical tensions could further exacerbate the energy crisis, driving prices even higher. In this scenario, the choice is clear: either continue to react to emergencies or accelerate structural transformation.
While updating the tools is legitimate, the direction must remain clear: less dependence on fossil fuels, more investment in the transition, greater industrial competitiveness. Because the issue is not ETS. It is the country’s economic future.
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