Veyt’s Chief Analytical Officer Marcus Ferdinand will give the following statement in the Roundtable Discussion on the development of the EU ETS review:

Thank you, Chair,

and thank you for the opportunity to contribute from a modelling and market‑analysis perspective. We are a neutral observer of the market and do not take a political position.

Over the past four months, EUA prices have declined sharply, largely on the back of uncertainty around the upcoming ETS review. Our fundamental modelling suggests that at today’s price levels, we will not see the abatement needed to clear the market over the long term. In simple terms, the ETS is not just there to reduce emissions today; it is meant to guide investment decisions that determine emissions over the next 10–20 years. If those decisions are delayed, the abatement challenge only grows in the next decade. Removing uncertainty and providing a clear, predictable and strategic pathway for the ETS should therefore be the core objective of this review.

At the same time, this review needs to address competitiveness concerns in a targeted way. That requires a clear distinction between, on the one hand, easing the burden on struggling industries and, on the other, maintaining an ambitious carbon price signal to justify the required low‑carbon investments. And we should be honest: the ETS alone cannot generate all the revenue and support instruments needed to solve the competitiveness challenge.

Against that backdrop, I would like to highlight three main priorities.

First, make the ETS review a logically sound exercise that provides strategic guidance. Stakeholders need to understand how the proposed 5 percent volume for international credits is quantified and how it is allocated across sectors. Then, proceed to clarifying the role of international credits in the ETS to inform the cap-setting. That should be the basis for re‑calculating the cap in a transparent way. It also requires clear guidance on whether, and how, international credits interact with the ETS – whether indirectly by informing the cap-setting, or directly through the surrender of units. From an analytical perspective, we see significant challenges with direct integration and would recommend keeping Article 6 credits outside the system.

Second, once the cap is defined, focus on the flexibility tools within the cap to tackle residual emissions – in particular, defining the rules for the Market Stability Reserve and the role for domestic removals. In a structurally tight ETS, the MSR increasingly becomes a liquidity reserve rather than a pure stability reserve. This calls for a smarter, more targeted use of allowances stored in the MSR, reflecting the fact that the market is tightening. Concretely, this could involve revisiting the TNAC calculation method so that it improves clarity to market participants, leading to an earlier and more proportionate release of allowances than under current rules.

In addition, one could also move from a static release volume to a dynamic mechanism where the number of allowances released depends on indicators of market tightness. While adjusting the TNAC is more of a technical fix, a dynamic release function is a strategic redesign; both approaches could help bring allowances back into the market several years earlier than today’s rules, softening the price impact of a tightening cap while maintaining strong abatement incentives.

A clear definition of the role for removals is required, adding flexibility and avoiding sky-rocketing prices when issuances approach zero while hard-to-abate emissions persist. The removals industry needs clear, upfront investment signals in order to provide removals at the scale required to clear the market during the next decade, and build a net-negative industry for the decades thereafter.

Third, keep the market rules predictable and use complementary instruments to manage carbon cost concerns. In our conversations with both compliance entities and financial investors, the message is very consistent: to use the ETS as a tool for decarbonisation, participants need a clear, stable rulebook. Regulatory uncertainty does not support investment decisions that lock in capital for 10 to 15 years. Adjusting supply timelines on an ad hoc basis to fund competitiveness countermeasures jeopardises predictability and undermines the ETS’s role as a long‑term, stable investment framework.

The ETS price alone cannot deliver deep decarbonisation and a competitive, secure industrial base; it needs supporting mechanisms. The review should therefore keep the core market mechanisms rule‑based and predictable in relation to the climate objective, while defining complementary instruments to address the distribution of carbon costs.

The ETS has successfully delivered emission reduction and supported investment decisions for two decades. Instead of revolutionizing a functioning system, we should ensure to equip it with right flexibility tools within a predictable framework.

So my three core messages in short:

Start with the logic of the cap

Then design the flexibility tools within the cap

Protect the ETS as an investment framework

Thank you