Rising CO₂ Prices: What Companies Need to Know and How to Stay Competitive

Rising CO₂ prices have a direct impact on your company – higher costs, changing market conditions, and new regulations require swift action. With a CO₂ price of €55 per ton in 2025 and the introduction of EU ETS 2 in 2027, you’ll need to rethink your business models to remain competitive. According to the International Energy Agency, carbon pricing is becoming a central tool for governments worldwide to drive decarbonization and incentivize innovation, with over 70 jurisdictions implementing or planning emissions trading or carbon taxes by 2024 (IEA).

What You Need to Know:

• Costs are rising: Energy, transport, and heating are becoming more expensive. Industries such as manufacturing, transport, and buildings are particularly affected.
• New regulations: Starting in 2027, the EU ETS 2 will replace Germany’s nETS – with market-based prices that can fluctuate significantly.
• Market changes: Customers and investors are demanding climate-friendly solutions; companies must meet ESG criteria.
• Early action pays off: Delays increase adaptation costs by up to 37% per decade.

Taking action now brings advantages: you can control costs, minimize risks, and take advantage of funding programs. Companies that invest early secure long-term success and strengthen their market position. The World Bank’s 2023 State and Trends of Carbon Pricing report highlights that companies proactively addressing carbon costs are better positioned to access green finance and avoid sudden regulatory shocks (World Bank).

Regulations and Market Changes

Key Regulations and Pricing Systems

The German Fuel Emissions Trading Act (BEHG) forms the basis for CO₂ pricing in Germany. Since 2021, the national emissions trading system (nETS) has covered all fuels used for heating and transport that are not already included in the EU Emissions Trading System (EU ETS). This clear distinction ensures that nearly all CO₂ emissions are assigned a price.

The pricing follows a clear plan: Between 2021 and 2025, fixed prices apply, increasing each year. From 2026, auctions with a price corridor of €55 to €65 will be introduced, before EU ETS 2 takes over with market-based prices in 2027. This transition phase gives companies time to prepare for rising costs.

A central innovation of EU ETS 2 is the introduction of a safety mechanism: As soon as the CO₂ price reaches €45, additional certificates are released to prevent extreme price spikes. In addition, Germany is using the opt-in option of EU ETS 2 to include fuels from agriculture and rail transport. This approach is designed to balance market stability with ambitious climate targets, as discussed in recent analyses by the European Parliament (European Parliament Briefing).

For waste incineration, the German nETS will remain in place beyond 2026, unless new EU regulations are introduced. This exception highlights the complexity of the regulatory framework.

These planned price increases will have varying impacts across different industries. The European Commission projects that the expansion of emissions trading to buildings and road transport could reduce emissions in these sectors by up to 43% by 2030 compared to 2005 levels (European Commission).

How Different Industries Are Affected

The price developments described above affect industries to varying degrees. Natural gas and diesel each account for about a third of the reported emissions in the German nETS, making them the largest contributors, followed by gasoline and heating oil at around one-sixth each. These sectors are therefore particularly in focus.

Energy-intensive industries feel the impact most acutely. The energy sector is Germany’s most emissions-intensive area. Companies in this sector must not only prepare for rising costs but also rethink their entire production processes. The steel and cement industries, for example, are under pressure to adopt breakthrough technologies such as hydrogen-based production (McKinsey).

The transport sector faces similar challenges. Freight and logistics companies are forced to reassess their cost structures to remain competitive. The International Road Transport Union notes that fuel costs can account for up to 30% of total operating expenses for logistics firms, making them highly sensitive to carbon pricing (IRU).

The buildings and heating sector is also heavily affected. Since heating accounts for about 75% of energy consumption in many industries, companies with high heat demand are especially vulnerable to rising CO₂ prices. This affects both industrial firms and service providers with large office spaces.

With regard to international competitiveness, Germany is relying on border adjustment mechanisms to protect domestic companies. The federal government has already introduced measures to support companies in international competition:

“The regulation ensures compensation of the CO₂ price for certain companies in international competition, to prevent carbon-intensive industries from simply relocating abroad. Compensation under the regulation is tied to the companies’ climate protection investments.”

Small and medium-sized enterprises (SMEs) often feel the effects indirectly. Larger companies are increasingly passing their reporting obligations down the supply chain, making SMEs responsible as well. Already, 82% of German companies with more than 250 employees are indirectly affected by the Supply Chain Act. This shows how regulatory requirements permeate the entire economy.

The waste management sector has faced new challenges since January 2024, as the German nETS was extended to waste incineration. This industry must now factor CO₂ costs into its calculations, which inevitably affects disposal prices.

Business Model Changes: Costs and Competition

Direct and Indirect Cost Effects

The rising CO₂ prices set by the regulatory framework described above are fundamentally changing the cost structures of German companies. Direct costs arise from the pricing of fuels and energy. At the same time, indirect costs are passed along the entire value chain, challenging companies to adapt their strategies.

In G20 countries, hidden carbon costs account for over 1.5% of the production value of carbon-intensive goods; in electricity generation, they can reach up to 10%. For German companies, this often means competitive disadvantages. For example, the average iron and steel producer in Germany faces a cost disadvantage of 1.43% compared to Japanese competitors.

Energy-intensive sectors are particularly affected. The energy sector is more sensitive to the shift to cleaner energy sources, as technical feasibility plays a greater role. In contrast, the transport sector is less price-sensitive. Here, consumer behavior and a lack of alternatives influence adaptability.

A study of the US electricity sector illustrates the impact of different CO₂ prices:

The data show that even moderate CO₂ prices have significant effects on emission reductions. This is echoed in the IEA’s assessment that a carbon price of $75 per ton by 2030 could deliver up to 40% of the emissions reductions needed to meet the Paris Agreement goals (IEA).

A look at total emissions reveals that more than 77% of companies – representing half of the US market value – bear carbon burdens that exceed their market value.

Market Changes and Customer Demand

The market is increasingly shifting toward low-carbon products and services. Customers are paying more attention to companies’ climate contributions, and carbon emissions are playing an ever-greater role in ESG ratings. According to a 2023 PwC survey, 76% of consumers say they are more likely to buy from companies with strong environmental credentials (PwC).

In 2024, Germany generated €18.5 billion in revenue from CO₂ pricing. Part of these funds is invested in funding programs that support climate-friendly technologies. This presents an opportunity for companies to strengthen their competitiveness by strategically leveraging these incentives.

Internal CO₂ prices are also gaining importance: 28% of European companies already use them to better assess policy risks and investment decisions. At the same time, the EU’s Carbon Border Adjustment Mechanism (CBAM) is leading to further market adjustments. Importers will soon have to purchase CO₂ certificates for carbon-intensive goods from non-EU countries. The CBAM is expected to affect sectors such as steel, cement, and aluminum, driving global supply chains toward lower emissions (Bruegel).

In this dynamic environment, quick action is required to seize opportunities and minimize risks.

Early Action vs. Waiting

The decision whether to act early or wait has a decisive impact on a company’s competitiveness. A meta-analysis of 16 studies shows that delays increase the costs of climate protection measures by an average of 37% per decade.

Early action acts as “climate insurance” against severe and irreversible consequences of climate change. Companies that act now benefit from still moderate CO₂ prices. Those who wait will face higher entry costs and steeper price increases later on.

Delays can also cause severe economic damage. A warming of 3°C instead of 2°C above pre-industrial levels would increase global economic damages by about 0.9% – equivalent to around $150 billion of the 2014 US GDP. The Stern Review on the Economics of Climate Change found that the costs of inaction could reach up to 20% of global GDP annually, while the costs of action are around 1% (Stern Review).

Investments in efficiency and technology pay off in the long run. By increasing energy efficiency, using renewable energies, and implementing digital energy management systems, companies can not only reduce costs but also strengthen their market position.

A systematic strategy for identifying emissions and CO₂ price risks helps to recognize risks early and turn them into opportunities. Forward-looking scenario planning can cushion price shocks. Transparency with investors about climate risk management also builds trust and can reduce capital costs.

Methods and Tools for Managing Transition Risks

Risk Analysis and Business Model Testing

Scenario-based analyses are crucial for assessing the financial impact of different CO₂ prices. One example is the Carbon and Energy Pricing Tool from EcoAct. With this tool, companies can estimate the financial burdens of carbon and energy prices and make informed decisions.

It makes sense to integrate forecasts for procurement and energy consumption into financial models to specifically identify business areas with the highest risk that require immediate action. According to EcoAct, CO₂ prices could account for up to 10% of revenue in particularly carbon-intensive industries by 2030.

Companies are increasingly using internal CO₂ pricing mechanisms to better assess financial risks and direct capital flows into more sustainable projects. The CDP (formerly Carbon Disclosure Project) reports that over 2,000 companies globally now use internal carbon pricing, up from just 150 a decade ago (CDP).

Additionally, carbon accounting software simplifies the collection and management of carbon data. These platforms automate processes such as data collection, mapping emission factors, and reporting. They enable companies to analyze climate risks and efficiently track emissions targets.

The market for carbon accounting software is growing rapidly: While it reached a value of $12.73 billion in 2022, it is expected to exceed $33 billion by 2029. The costs for such software vary – smaller companies pay around €4,000, while large enterprises can expect to pay over €20,000. These technologies thus provide a solid foundation for reducing emissions while operating economically (MarketsandMarkets).

Technologies and Methods for Emissions Reduction

Germany is investing heavily in technologies such as hydrogen, carbon capture, and electrification to reduce CO₂ emissions. Key measures include the use of alternative fuels, electrification of production processes, and hydrogen-based direct reduction in the steel industry. The National Hydrogen Strategy aims to make Germany a global leader in green hydrogen by 2030 (Federal Ministry of Education and Research).

Practical examples demonstrate the effectiveness of such approaches: Microsoft reduced its Scope 1 and Scope 2 emissions by 22.7% through automated data collection. Shenzhen converted its entire bus fleet of 16,000 vehicles to electric drive. The Hybrit project in Sweden uses fossil-free hydrogen in steel production, and Anaergia turns food waste into renewable natural gas. These examples illustrate the scale and diversity of successful decarbonization strategies (IEA Energy Technology Perspectives 2023).

The German government actively supports these developments. Up to €40 billion is available for regions affected by the coal phase-out. In addition, Germany has already reduced its greenhouse gas emissions by 35.7% since 1990 and aims to increase the share of renewable energy in electricity consumption to 80% by 2030.

Fiegenbaum Solutions Support Services

Fiegenbaum Solutions offers comprehensive support to companies and startups in implementing sustainable strategies. Led by Johannes Fiegenbaum, the consultancy helps achieve sustainable growth, regulatory compliance, and measurable climate goals.

A key focus is on scenario analyses and impact modeling. These are used to make data-driven decisions for sustainable business models. Climate risk assessments and resilience planning are just as important as life cycle assessments (LCA). With these analyses, companies can precisely assess CO₂ impacts along the entire value chain.

Another central area is support in meeting regulatory requirements. Fiegenbaum Solutions assists with the implementation of standards such as CSRD, VSME, and the EU taxonomy. The team also develops net-zero strategies and CO₂ reduction pathways that meet both legal requirements and offer economic benefits.

The consulting models are flexibly designed to suit companies of all sizes. Project-based approaches address specific topics such as ESG roadmaps or life cycle assessments, while retainer agreements enable ongoing support in sustainability, climate risk, and compliance. There are also special conditions for startups.

A distinctive feature of the consultancy is transparent pricing. After an initial consultation, clients receive a detailed proposal with a clearly defined scope of work, timeline, and fee structure. As an independent advisor, Johannes Fiegenbaum brings not only in-depth market knowledge and regulatory expertise but also an entrepreneurial perspective that helps achieve measurable success and drive long-term transformation.

Conclusion: Getting Ready for Higher CO₂ Costs

With a CO₂ price of €55 per ton in 2025 and forecasts exceeding €100 in the EU ETS, one thing is clear: waiting is not an option. This price trend increases the pressure on German companies to act now. The International Monetary Fund projects that carbon prices in advanced economies may need to reach $85–$100 per ton by 2030 to align with net-zero targets (IMF).

Those who act early gain an edge. Although over 70% of German companies know their CO₂ footprint, only 54% have defined concrete emission reduction targets. This gap between knowledge and action poses significant risks for laggards – both financially and strategically.

Digitization opens up immense opportunities. Michael Jungwirth of Vodafone Germany sums it up:

“We are at a critical point where we must decide how seriously we take the opportunities of digitization. The time to act is now.”

Successful examples show how it’s done. Siemens has invested more than €650 million in CO₂ reduction measures and cut its emissions by 46%. Mercedes-Benz achieved CO₂ neutrality in vehicle production as early as 2022. Lidl reduced its Scope 2 emissions by an impressive 97.4% by switching entirely to green electricity. These examples underscore: clear strategies and targeted investments pave the way to a sustainable and competitive future. Similar success stories are emerging globally, with Unilever, for example, reducing its operational emissions by 68% since 2015 (Unilever).

The figures and real-world examples make it clear that companies that act early not only minimize climate risks but also gain competitive advantages. Hesitant behavior, on the other hand, will be costly due to rising expenses for compensation and emission certificates.

The time to act is now. Fiegenbaum Solutions supports you with comprehensive expertise – from scenario analyses and climate risk assessments to tailored net-zero strategies. Rising CO₂ costs, proven transformation approaches, and the potential of digitization all point to one thing: those who invest wisely now will secure long-term market success.

FAQs

How can companies adapt their business models to rising CO₂ prices to remain competitive in the long term?

Companies can align their business models with rising CO₂ prices by taking targeted measures to reduce emissions and keep costs under control. An important step is the introduction of internal CO₂ pricing systems. These help companies prepare early for regulatory requirements and make more climate-friendly decisions. According to CDP, companies that use internal carbon pricing are more likely to achieve emissions reductions and attract sustainable investment (CDP).

Investments in energy-efficient machinery and environmentally friendly technologies also play a central role. Such measures not only lower operating costs in the long run but also allow companies in Germany to benefit from tax advantages such as depreciation. In addition, digital technologies can be used to make processes more efficient and further reduce CO₂ emissions. The German Energy Agency (dena) estimates that digital energy management can cut energy consumption by up to 20% in industrial settings (dena).

With these approaches, companies not only build a solid foundation to minimize risks but also open up new opportunities to strengthen their position in a changing market environment.

How do rising CO₂ prices and EU ETS 2 affect different industries?

The EU ETS 2 brings significant changes for energy-intensive sectors such as steel, cement, chemicals, glass, construction, buildings, road transport, and the energy industry. The aim of the system is to reduce CO₂ emissions by setting a price for carbon emissions. For companies that cannot reduce their emissions, this primarily means higher costs. According to the European Commission, the expansion of emissions trading could drive innovation and accelerate the adoption of low-carbon technologies across these sectors (European Commission).

The affected industries face the challenge of making their processes more efficient, switching to lower-emission technologies, and securing their long-term competitiveness. But alongside the risks, there are also opportunities: investments in new decarbonization technologies and sustainable business models can not only help meet requirements but also create new growth opportunities.

For decision-makers, it is crucial to develop strategies early to reduce risks and make the most of emerging opportunities. Only then can companies successfully manage the transition to a lower-emission future.

Why is it important to respond early to rising CO₂ prices, and how can companies benefit?

Acting early in the face of rising CO₂ prices gives companies the chance to minimize costs and gain a competitive edge. Those who invest in sustainable technologies and processes can reduce emissions and protect themselves from future financial burdens caused by higher CO₂ prices. The Stern Review and recent IMF research both emphasize that early action is far less costly than delayed responses (Stern Review, IMF).

Companies that take early action are also better prepared for legal adjustments and market changes. This not only strengthens their competitiveness but also helps them remain economically stable in the long term. In addition, an improved reputation opens doors to new business areas in decarbonization and increases attractiveness to partners and customers.