The consequences of stricter CO2 pricing for Germany
Decarbonization efforts will lead to more expensive CO2 emissions and burden the German industry.
Dr. Vincent Stamer
Commerzbank Economic Research
11/21/2025
We provide an overview of the latest developments in the two EU emissions trading systems (ETS 1 and 2) and the European CO2 border adjustment mechanism (CBAM). While border adjustments and the reduction of free allowances for the industry are likely to continue to weigh on the German economy, Germany is well prepared for emissions trading in the transport and building sectors.
Further burdens on German companies
In the coming years, the German economy will face further burdens as a result of CO2 pricing:
- Tightening of the existing emissions trading system (ETS 1): Currently, countries distribute around 40% of carbon permits free of charge under ETS 1, which now covers the energy sector, industry, as well as aviation and maritime transport within the EU. The remaining allowances are auctioned on an exchange. Starting next year, not only will the total amount of available allowances continue to be reduced by 4.3% annually (4.4% from 2028 onwards), but the share of allowances allocated free of charge will also fall in many of the industrial sectors covered. This is likely to lead to an increase in the market price of allowances in the future.
- “Definitive phase” of the Carbon Border Adjustment Mechanism (CBAM): For two years now, EU companies have been required to record how much CO2 was generated in the production of iron, steel, cement, aluminum, fertilizers, electricity, and hydrogen imported from outside the EU. Starting next year, they will now have to purchase CO2 certificates from the EU for an increasing portion of these imports, with the price based on the market price of ETS-1 certificates. Next year, certificates will have to be purchased for 2.5% of emissions generated abroad. This share is set to rise to 100% by 2034. In August, the European Commission denied rumors of a postponement and confirmed the start of the pricing phase for January 1, 2026.
- Launch of an additional emissions trading system (ETS 2) for other sectors: A new separate emissions trading system for the building and road transport sectors is likely to be launched in early 2028, one year later than previously planned. Suppliers of fuels such as gasoline, diesel, and heating oil will in future have to surrender allowances for the sale of these goods. The entry price is 55 euros per ton of CO2 emitted. Unlike ETS 1, there will be no free allocation of certificates in ETS 2; all certificates will be auctioned. In some countries, such as Germany, ETS 2 will replace the prices for CO2 emissions already levied at the national level.
For full text see attached PDF-Version.
