Valentin Vigier, Head of ESG Research, La Financière de l’Échiquier
For two decades, the European carbon market (EU ETS [1]) has served as a foundational pillar of climate policy. By assigning a price to each tonne of CO₂, the European Union has integrated an explicit environmental constraint into economic decision-making. As the review expected in summer 2026 approaches, this framework is subject to political trade-offs that go far beyond climate ambition alone.
Decisive choices for carbon-intensive sectors
As responsible investors, it is essential to understand not only the transition plans of individual companies, but also the regulatory environment in which they operate. A credible and progressive price signal [2] remains one of the few incentive mechanisms capable of triggering long-term industrial investment. Conversely, any sustained challenge to this signal introduces uncertainty that risks penalising the firms furthest ahead in their decarbonisation trajectories.
However, the issue of competitiveness cannot be ignored in the face of international competitors subject to little or no carbon pricing. To address this asymmetry, the Carbon Border Adjustment Mechanism (CBAM) came into force in early 2026, aligning the carbon cost of imports with that borne by European manufacturers. This innovative EU instrument aims to levy a charge on the embedded carbon emissions of specific imported goods.
Diverging interests
In sectors such as steel or cement, where decarbonisation hinges on massive capital expenditure – for instance, in electric arc furnaces and carbon capture and storage (CCS) technologies – regulatory alignment between the ETS and the CBAM is indispensable. Such alignment is essential to secure the profitability of these investments and to ensure the recognition of a genuine “green premium”. By contrast, a prolonged loosening of the carbon framework might offer temporary relief to laggards, but it risks penalising pioneers and eroding Europe’s technological lead. For the chemicals industry, where decarbonising industrial processes is both technically difficult and costly, a potential extension of free allowances would limit production costs in the short term.
Carbon pricing, therefore, is no longer merely an environmental tool; it has become a structural driver of competitiveness and differentiation. Over the long term, as the economy decarbonises, we believe the winners and losers of the European energy transition will be determined by the coherence of their strategies rather than by cyclical regulatory adjustments.
[1] European Union Emissions Trading System
[2] A carbon price
