Brussels’ carbon tax is stifling the European economy

The European Union’s Emissions Trading System (ETS) is facing increasing criticism. At his 2026 international press conference, Viktor Orbán said that the ETS was artificially raising market energy prices in the EU, so its phase-out could lead to an immediate 20% price reduction. The new Prime Minister of the Czech Republic, Andrej Babiš, has proposed suspending quota trading for five years. Slovakian leader Robert Fico also joined the proposal, calling the system “madness”.

The ETS is a special carbon tax in which the amount of the tax depends on the maximum permitted carbon dioxide emissions (quota supply) and the emissions of economic operators (quota demand). The key point is that the regulator:

• sets a maximum amount of carbon dioxide that the industries concerned may emit during a given period,
• divides this quantity into “quotas”,
• sells them to companies operating in various industries,
• allows them to trade in them (which is why the intervention is called a “quota trading system”), and then
• at the end of the period, the companies concerned must demonstrate that they have as many quotas as their carbon dioxide emissions, otherwise they will have to pay a penalty.

The European Commission considers the ETS to be a high-priority climate policy instrument. It justifies this by arguing that artificially increasing the costs of energy production and industrial activity will motivate EU companies to reduce their energy consumption and emissions. However, Brussels’ commitment is probably driven in no small part by the fact that the carbon tax would provide it with an independent source of revenue, separate from Member States. Despite criticism, this is probably why it insists on creating a new quota market (ETS 2) for areas not covered by the ETS (for residential heating/cooling, transport, and agricultural activities), which, according to Századvég’s estimates, would make the overhead cost reduction policy unfeasible in Hungary and increase the price of petrol to HUF 870 per litre.

The quota system has become a serious competitive disadvantage

The ETS has been in operation for twenty years, but in its first decade (during the introductory and more permissive regulatory periods) it had little impact on the competitiveness of EU industry. The turning point came with the European Green Deal announced by Ursula von der Leyen in 2019, which set stricter emission targets than before and reduced the supply of quotas, causing carbon costs to diverge from the quota markets of other major regions.

During the coronavirus pandemic, economic activity declined, energy demand fell, and the need for power plants that emit carbon dioxide was reduced, so the increase in quota prices had little impact on energy prices. With the post-lockdown recovery, however, energy demand increased and traditional power plants had to be started up more frequently, which affected both carbon quota demand and carbon prices, causing energy prices to rise. The process was further exacerbated by the energy crisis and then by trade conflicts.

The EU’s competitive disadvantage did not disappear even during the correction following the energy price explosion in 2022. In 2024, EU companies had to pay almost three times as much per ton of carbon dioxide emitted as their American competitors and five times as much as their Chinese competitors (the difference was even greater in 2023, at six and nine times, respectively). High quota prices also hit the European economy on several levels, as industrial companies have to pay artificially inflated energy prices and also purchase quotas for their own emissions. The former alone can be considered a serious problem: industrial electricity prices in the EU are more than twice as high as in the US or China, and this, as the figure shows, is a consequence of the war premium caused by sanctions and the carbon premium caused by radical climate targets.

At the beginning of 2026, cold winter weather across Europe increased energy demand, and with renewable producers only able to provide limited support, conventional power plants were running at peak capacity. These developments have pushed quota prices to a multi-year high of EUR 90 per ton, which is three and a half times higher than the US Regional Greenhouse Gas Initiative price of less than USD 25 and nine times higher than the China National ETS price of less than USD 10.

The EU’s radical climate policy and the resulting multiple quota prices cannot be justified by any moral, economic or environmental arguments, as one ton of carbon dioxide has the same impact on the climate regardless of which continent it is emitted from. This is particularly true in light of the fact that the EU contributes 6% of global emissions.

Europeans reject carbon tax

Although the idea of extending the emissions trading system originally came from radical greens, the measure also fits in well with the European left’s efforts to raise taxes and centralise power. The dividing lines between European parties are also aligned along these lines: while the Greens support the measure, for example, the Patriots and Conservatives reject it. However, the results of Századvég’s Project Europe survey show that the issue of carbon tax divides the population much less than it divides the elite: the majority rejects both the consequences of the previous quota system (ETS) and the introduction of the new system (ETS-2).

59% of EU citizens and 79% of Hungarians disagree with the additional costs imposed on European industrial companies by carbon taxes (the proportion is 66% in Poland and 65% in the Czech Republic and Slovakia). The introduction of the new carbon tax is rejected by 59% of Europeans, 81% of Hungarians, 70% of Czechs, 66% of Poles and 65% of Slovaks.