The battle over CO₂ is playing out between European governments and Brussels

On the one hand, the path to decarbonisation to meet climate targets: a 90 per cent reduction in greenhouse gas emissions by 2040 compared with 1990, and the goal of climate neutrality by 2050. On the other, the need to preserve the competitiveness of European industry in the midst of the crisis in the Middle East, with its geopolitical implications and impact on energy costs. It is against this backdrop that the battle over CO₂ is playing out, centred on the CBAM (Carbon Border Adjustment Mechanism) and the EU ETS (European Union Emissions Trading Scheme).

The first came into effect this year. It forms part of the EU’s ‘Fit for 55’ package of measures and applies to certain carbon-intensive goods in six key sectors (iron and steel, aluminium, cement, fertilisers, electricity and hydrogen) imported from third countries into the EU customs territory. Companies falling within the scope of the scheme are required to purchase CBAM certificates in proportion to the CO₂ embodied in the imported products. They must submit an application for authorisation as a CBAM declarant by 31 March. In 2026, the charge will apply to only 2.5 per cent of the full price, but this proportion will rise in subsequent years, reaching 100 per cent in 2034. Italia, which imports numerous raw materials from non-EU countries, is the most exposed to the economic impact of the measure, according to the consultancy firm iSustainability, with at least 3,000 companies affected by the new mechanism.

Among the sectors most affected is the foundry industry, which is heavily reliant on imports of essential raw materials such as cast iron ingots, ferroalloys and crude aluminium, all of which are subject to the CBAM. “The mechanism,” explains Fabio Zanardi, president of Assofond, “is very complex and the situation is highly uncertain. The price of these production inputs, which are fundamental to the sector, is currently impossible to quantify, as it will depend on the value of CBAM certificates – which will only be certain once importers are able to purchase them (from February 2027) – and on the actual quantities of CO₂ attributable to the products, which cannot be certified before September 2026. Suppliers and buyers are therefore currently unable to set a price, and this is leading to a freeze on sales with a real risk of paralysis”. Hence the association’s three requests to Brussels: ‘It is necessary,’ says Zanardi, ‘to extend the transitional period, which ended on 31 December last year, to the two-year period 2026–2027, transforming it into an assessment period to stabilise prices and avert a halt to production. Furthermore, to prevent the CBAM from resulting in a competitive disadvantage for the most environmentally responsible EU companies, it is urgent to exclude cast iron ingots and aluminium ingots imported from non-EU countries from the mechanism and to broaden the scope to 35 downstream customs codes to also include semi-finished products’. These requests have been taken on board by the Italian government, which is pressing the EU Commission for a review of the mechanism.

All eyes are also on the ETS1, the Emissions Trading Scheme. Introduced in 2005, it now covers the electricity sector, energy-intensive industries, civil aviation and the shipping sector. Under the scheme, the industrial sectors that emit the most CO₂ must purchase allowances for every tonne. The cost paid by companies to buy these allowances forms the basis for funding transition policies. The European Commission, whilst defending the scheme, has already announced that the rules will be updated by July. The launch of ETS2, which will cover the road transport sector and air conditioning in buildings, was originally scheduled for 2027 but has been postponed to 2028.

Meanwhile, at the end of February, Italia and ten other countries took a firm stand, calling for a thorough review of the ETS. Rome went a step further by calling for its suspension pending the introduction of new rules. And in the energy bills decree, it included a measure to decouple the ETS from the cost of gas used for electricity generation, estimating savings of €3 billion a year for households and businesses. The measure, currently under review by the Commission, will come into force in 2027. Confindustria President Emanuele Orsini is also pushing for the temporary suspension of ETS 1 ‘so that it can be completely rethought’ and for a halt to ETS 2 before it comes into force. Meanwhile, last week the EU officially opened the dossier: the issue of ETS reform will be on the agenda at the EU summit on 19 and 20 March. Leaders will call for the reform to reduce volatility and the impact on electricity prices.