• Germany plans to hold its national carbon price at $64 to $75 per metric tonne of CO2 in 2027, shielding industry from wider European market volatility.
• The reform follows the EU’s decision to delay its new ETS 2 carbon market for buildings and transport until 2028.
• Energy industry group BDEW welcomed tighter auction and allowance rules but warned further changes are needed to ensure price stability.

Berlin has approved legislation designed to give businesses greater certainty over Germany’s carbon costs as Europe restructures emissions trading for buildings and transport.

The German government approved a draft amendment to its Fuel Emissions Trading Act, known as the BEHG. The proposal would maintain a fixed carbon price corridor during 2027.

Under the plan, allowances would trade between $64 and $75 per metric tonne of carbon dioxide. That is the same range applied this year.

The government is seeking to avoid an abrupt shift to more volatile European carbon market pricing. That exposure would otherwise have started next year under existing German rules.

The legislation must still pass through the Bundestag before taking effect.

EU ETS Delay Forces Germany to Rework Carbon Pricing

Germany’s intervention follows the postponement of the European Union’s new Emissions Trading System for buildings and road transport, known as ETS 2.

The system is now scheduled to begin in 2028.

Without a change to German law, the national carbon price would have become linked to European carbon market prices from 2027. That could have introduced wider price fluctuations for companies purchasing allowances.

For carbon-intensive businesses, predictability is increasingly important. Carbon costs affect operating expenses, investment decisions and the economics of switching to lower-emission technologies.

Maintaining a defined corridor gives companies greater visibility over their compliance liabilities for another year.

It also provides Germany with a transition period before its domestic system becomes more closely integrated with the EU framework.

Industry Welcomes Tighter Auction Rules

Germany’s energy and water industries association, BDEW, welcomed several changes made by the Cabinet to the original ministry proposal.

Among the most significant is a reduction in the maximum bid volume allowed per auction and compliance account. The ceiling has been lowered from 50% to 20%.

The government has also tightened rules governing the banking of allowances between compliance years.

“Allowances from 2026 can no longer be used to fulfill the surrender obligation in 2027,” said Kerstin Andreae, chair of the BDEW Executive Board, adding that the changes lower financing costs and reduce the need for companies to set aside large sums for hedging.

For energy companies, these changes could reduce the capital required to manage carbon price exposure. They may also limit the risk of individual market participants accumulating unusually large allowance positions.

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However, BDEW believes the framework still requires adjustment.

Andreae pointed to concerns around top-up price levels and the structure of future auctions. The association plans to seek further amendments during the parliamentary process.

It warned that the government may fail to achieve its price-stability objective unless those issues are resolved.

Carbon Price Certainty Becomes an Industrial Policy Issue

Germany’s approach reflects a broader challenge for European policymakers. Carbon pricing must remain strong enough to encourage decarbonization while avoiding sudden cost increases that could weaken industrial competitiveness.

That balance is especially important as European manufacturers face high energy costs, investment demands and growing pressure to cut emissions.

For corporate leaders, the 2027 corridor offers temporary certainty rather than a retreat from carbon pricing. Germany is still preparing businesses for a more integrated European emissions market.

The next major test will come in parliament, where lawmakers will determine whether the proposed safeguards are sufficient.

For investors and companies operating across Europe, Germany’s reform also offers a preview of the governance questions surrounding ETS 2. As the EU expands carbon pricing into buildings and transport, policymakers will increasingly need to manage both emissions reduction and economic volatility.