The ETS under scrutiny - why is European industry sounding the alarm?
The European Emissions Trading System (EU ETS) has for years been a pillar of EU climate policy. The mechanism obliges businesses to purchase carbon dioxide emission allowances, which is intended to encourage a shift to low-emission technologies. However, the European Commission's planned ETS reform is raising serious concerns among the biggest players in European industry.
Markus Kamieth, head of BASF - one of the largest chemical companies in the world - openly criticised the proposed changes in an interview with the "Financial Times". In his view, the conditions for obtaining free emission allowances may prove impossible for many businesses to meet. Companies would have to submit climate investment declarations, even though key elements needed for profitable, low-emission production are missing - such as available and cheap green hydrogen or adequate energy infrastructure.
"I consider this proposal risky, because it may accelerate the decline of European industry. Rising CO2 prices are intensifying the relocation of production plants," Kamieth said. These are words that should worry not only the boards of large corporations, but also lawyers specialising in corporate law and environmental regulation.
Details of the reform - what exactly is the European Commission planning?
According to the European Commission's plans, free emission allowances are to be retained until 2040, but they will be much more closely tied to specific investments made in the European Union. The new mechanism provides for a precise division of allocations, which in practice introduces a conditional system:
- 80% of free allowances will go to companies that present specific emission reduction plans together with an implementation timetable.
- 20% of allowances will be granted only after the declared climate investments have actually been carried out.
- The 10% most efficient industrial installations are to be exempt from the new conditions - as a "benchmark" for other entities.
At first glance the system seems fair - it rewards those who invest in the green transition. The problem, however, is that many sectors do not yet have the technologies needed for economically viable decarbonisation. EUROFER (the European Steel Association), based in Brussels, warns outright that without widely available hydrogen, imposing such requirements is premature and threatens to undermine the competitiveness of Europe's heavy industry sector.
From a legal perspective, the reform raises questions about the principle of proportionality of regulation and whether the new requirements amount in practice to an administrative barrier that discriminates against entities which, for technological reasons, are unable to meet the investment criteria imposed on them.
The exodus of industry from Europe - the scale of the problem and relocation destinations
The warnings from the head of BASF are not an abstract vision of the future - they describe processes that are already under way. As the "Berliner Zeitung" points out, European chemical industry has lost around 10% of its production capacity on the continent since 2022. This means closed plants, lost jobs and an eroding tax base in the Member States.
BASF itself is a telling example of this trend. In the first half of July 2026, Deutsche Welle reported that the group intends to move service-related jobs to India. For BASF's Berlin branch, this entails the need for headcount reductions. India, which offers lower labour costs, less restrictive environmental regulation and a growing domestic market, is becoming a natural relocation destination.
This process is not limited to individual companies. German businesses - both smaller entities and global groups - are increasingly deciding to move part of their production outside the European Union. The destinations are not only India, but also China and the countries of South-East Asia. "Investment will leave Europe before emissions disappear" - this is Kamieth's apt summary, which captures the paradox of current EU climate policy.
Legal consequences of relocation for business owners
The decision to move production abroad is not just a business calculation, but also a complex legal process. Business owners must take into account a number of aspects, including employment law (collective redundancies, voluntary departure programmes, consultation with trade unions), tax law (transfer pricing, the risk of double taxation), and the commercial law of the destination country. In the case of India, there are also specific rules on foreign direct investment (FDI), registration requirements and intellectual property protection issues.
Impact on the Polish market - are Polish companies at risk?
Although the debate focuses on German corporations, the ETS reform will affect Polish business owners just as much. Poland, with a large share of energy-intensive industry in its economy, is particularly exposed to the negative effects of tighter emissions policy. Sectors such as chemicals, steelmaking, cement and glass may face the same dilemma as BASF - invest in technologies that do not yet exist, or move production to where regulation is more lenient.
For Polish companies, proactive management of regulatory risk becomes crucial. This means not only monitoring changes in EU legislation on an ongoing basis, but also preparing contingency scenarios and building a legal strategy in case requirements are tightened. It is worth analysing now which legal instruments allow ETS-related costs to be optimised - from effective management of the allowance portfolio, through the use of compensation mechanisms, to the possible structuring of operations within a corporate group.
Key areas requiring legal support
Business owners planning a restructuring in response to the ETS reform should protect themselves in several key areas:
- Regulatory audit - assessing the impact of the new rules on the specific business and identifying risks.
- Compliance strategy - developing procedures that ensure compliance with the new requirements while optimising costs.
- Employment law and restructuring - carrying out any headcount reductions correctly in accordance with Polish and EU law.
- Foreign expansion - legal support when setting up branches or subsidiaries in the destination countries for relocation.
- Intellectual property protection - safeguarding know-how and patents when moving production processes.
How to prepare? The importance of a legal strategy in a time of transformation
The reform of the ETS is not a distant prospect - it is a process taking shape before our eyes, and it will have a direct impact on the profitability, employment structure and investment decisions of thousands of European businesses. The words of the head of BASF are not an isolated voice - they express the frustration of entire sectors that feel they face an impossible choice between costly transformation and leaving the continent.
In this context, the role of professional legal advice cannot be overstated. A strategy put in place early enough not only helps avoid costly mistakes, but also identifies opportunities - from aid programmes and EU grants, through optimising the corporate structure, to negotiating favourable terms with foreign partners.
Whether your company is considering restructuring, planning expansion into Asian markets, or simply wants to understand how the new regulations will affect its business - it is worth acting now. The earlier a legal strategy is developed, the greater the room for manoeuvre in the face of the changes ahead.
Contact our firm to discuss how the ETS reform may affect your company and which legal steps are worth taking today. Our experts in corporate law, environmental regulation and foreign expansion will help you prepare for every scenario.
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