By Joshua Kirby
The European Union plans to make changes to its landmark carbon-pricing program as the bloc's industrial sector braces for a spike in energy prices caused by the war in the Middle East.
The EU's emissions-trading system will be tweaked in the face of soaring prices for oil and gas, said Ursula von der Leyen, president of the EU executive, the European Commission.
"We need to modernize it and make it more flexible," Von der Leyen told reporters late Thursday. The ETS will be adjusted to account for industry concerns, with roomier benchmarks for free allocations and greater firepower for the system's market-stability reserve, she said. The changes should come within days, she added. Under the ETS, companies must buy a permit for each metric ton of carbon they emit.
Europe's physical supply of energy is still guaranteed, despite the turmoil in the Middle East, Von der Leyen said.
"However, Europe is not immune to global price-spikes," she said. Brent crude oil futures climbed above $111 a barrel Friday after the U.S. and Israel's war with Iran continued to escalate, with a major gas hub in Qatar hit hard by Iranian attacks earlier in the week.
Amid soaring energy prices, Europe's business investment "needs stability and predictability," Von der Leyen said. Brussels will also work to alleviate the blow from the energy-price jump by making state aid more flexible, and by proposing that national governments tax electricity less steeply. In the longer term, cash support for decarbonization to the tune of 30 billion euros ($34.77 billion) will also be made available for European industry, she said.
"We will provide much needed financial support for our industry," she said.
The ETS--which was launched in 2005--has already helped by reducing Europe's dependency on fossil-fuel imports and spurring investment in the energy transition toward renewable energy and nuclear, Von der Leyen said. But ETS prices have dropped sharply this month, analysts at Rabobank wrote in a research note Friday.
"Expectations of changes to the supply of allowances in 2026 are creating a more bearish outlook," they said.
European business has already begun to sound the alarm about the impact of an energy crunch. Economic sentiment in Germany, the bloc's industrial powerhouse, plummeted this month, according to think-tank ZEW, which pointed to rising fears of a fresh spike in inflation. German chemicals association VCI warned last week that the war in the Middle East was showing early signs of hitting the industry's supply chain. Chemicals giant BASF, which supplies a host of industrial sectors across Europe, said this week it would hike some prices by nearly a third as raw-materials costs climb. Wacker Chemie, another German supplier, said Friday that it would raise prices for silicone products from the start of next month, blaming the war's "distortions" on energy and raw-materials.
The crunch is the most serious threat to European industry since the continent shut off supplies of Russian gas early in 2022, when President Vladimir Putin launched an all-out invasion of neighboring Ukraine, triggering a jump in energy prices that hobbled a European factory sector already struggling with hotter competition from abroad and moribund investment at home.
Still, Von der Leyen said the EU would continue with its plan to fully phase out imports of Russian gas. Imports of liquefied natural gas from Russia's fields are due to have stopped by the end of the year.
"We have our clear targets and we are sticking to our targets," she said, though she declined to explicitly rule out any delay to the phasing out of Russian LNG.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
(END) Dow Jones Newswires
March 20, 2026 09:36 ET (13:36 GMT)
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