With the July review of the EU Emissions Trading System and the Market Stability Reserve approaching, several Member States are putting forward their own visions for how the carbon market should look like, reflecting differing priorities on the pace of decarbonisation.

According to a document seen by Bloomberg, Germany—Europe’s largest economy and one of the most vocal Member States in the reform debate—“wants the European Union to place industrial transition to cleaner energy at the heart of the planned review of its carbon market.”

Among other measures, Berlin advocates revising benchmarks that determine the level of free allocation, slowing the pace at which allowances are phased out, and allowing the use of international carbon credits under Article 6 of the Paris Agreement.

While cautioning against any weakening of the Market Stability Reserve, Germany argues that the mechanism should nonetheless be adjusted to enhance system flexibility and better mitigate price volatility, ensuring it can respond more effectively to market shocks.

Berlin wants the EU ETS to “continue to function as an anchor in light of current economic and international challenges if we focus on its core function: achieving climate targets, and providing stability, reliability, and long-term planning certainty,” adding that “strengthening its reliability must be central.”

In February, German Chancellor Friedrich Merz said at the European Industry Summit that if the EU ETS is not the right instrument to reduce emissions, “we should be very open to revise it or at least to postpone it as we did with EU ETS2.” Although the remark was later walked back, it triggered a market reaction, with carbon prices falling to a six-month low in its aftermath.