Week Ahead (27 April)

W/C Monday, 27 April – ETS benchmarks for 2026-2030 expected imminently, though adoption risks slipping into early May amid political pressure

The European Commission is expected imminently to finalise the revised EU ETS benchmarks for the 2026–2030 period.  Initial indications are that this will take place by the end of April, although timing remains uncertain and could slip into early May, reflecting growing internal divisions and the political sensitivity around the file.

A draft version has already circulated in Brussels, confirming a relatively pragmatic calibration. The proposed changes point to moderate tightening across most sectors, rather than the sharper reductions discussed earlier in the process. This is particularly visible in energy-intensive segments such as chemicals, where benchmarks for activities like PVC production and steam cracking appear to be adjusted only marginally, suggesting a more accommodating stance in light of competitiveness pressures and technical decarbonisation constraints.

By contrast, sectors such as steel and construction materials remain on a gradual downward trajectory, with benchmark values continuing to decline in line with efficiency gains, but without any abrupt recalibration. Overall, the technical direction remains consistent with the existing framework, avoiding any step change in the allocation system.

Despite this balanced outcome, the finalisation process has become increasingly politicised. Feedback from EU diplomats indicates that disagreements within the College have slowed progress, with several Commissioners reportedly involved in discussions over the final figures. This reflects broader tensions around industrial cost exposure under the ETS, particularly in the current energy price environment.

Pressure from member states has also intensified: Italy has formally called on the Commission to pause the benchmark revision altogether, arguing that adjustments should instead be addressed during the upcoming broader ETS review. In a letter to Commissioners Teresa Ribera, Stephane Sejourne and Wopke Hoekstra, ministers from the government of Giorgia Meloni last week warned that proceeding now risks creating regulatory uncertainty, particularly if elements are subsequently revised. They also raised concerns around the Cross-Sectoral Correction Factor, which caps the total volume of free allowances.

At the same time, the Commission has limited legal flexibility, as benchmarks must reflect the performance of the top 10% most efficient installations in each sector. This constrains the scope for political adjustments, even as calls for more generous free allocation grow. Reflecting this tension, DG CLIMA Director-General Kurt Vandenberghe recently signalled that the Commission is exploring “what flexibility may be available to provide more generosity in free allowances than we initially anticipated,” while preserving the integrity of the system.

The delay comes alongside broader developments in EU carbon policy. Earlier this month, the Commission proposed targeted changes to the Market Stability Reserve (MSR), notably removing the automatic cancellation of surplus allowances, effectively increasing future supply flexibility. In parallel, the timeline for the comprehensive ETS review has been pushed back slightly, with publication now expected on 15 July instead of 7 July.

Overall, although the benchmarks themselves are unlikely to deviate significantly from the current trajectory, their delayed adoption has been a key indicator of the growing political sensitivity of ETS cost allocation ahead of the wider review and against the backdrop of rising energy prices due to the conflict in the Middle East.

Tuesday, 28 April – UPM–Sappi paper deal set for Phase II review, testing “resilience” arguments in merger control

The European Commission is expected to decide by tomorrow whether to open an in-depth (Phase II) investigation into the proposed €1.42 billion joint venture between UPM-Kymmene and Sappi, with indications in Brussels pointing toward a more detailed probe.

The transaction would combine UPM’s communication papers business with Sappi’s European graphic paper operations into a 50/50 joint venture spanning production sites across Finland, Germany, the UK, the Netherlands, Austria and the US. The parties have positioned the deal as a response to a structurally declining market, citing digitalisation, persistent overcapacity, elevated energy costs and import pressure. In doing so, they have explicitly argued that the combination would strengthen “resilience,” supply security and cost competitiveness.

This framing makes the case particularly relevant in the current policy context. As the Commission prepares to publish revised merger guidelines in the coming days, companies are increasingly testing arguments linked to resilience, innovation and competitiveness alongside traditional efficiency claims. Executive Vice-President Teresa Ribera has indicated that resilience may be taken into account where a transaction enhances Europe’s position in globally exposed markets or reduces structural vulnerabilities. At the same time, DG COMP has consistently emphasised that resilience remains a contextual factor, not a standalone justification for consolidation.

Against this backdrop, the UPM–Sappi case is expected to be an early practical test of how far such arguments can be taken in enforcement. The deal sits squarely at the intersection of industrial restructuring and the Commission’s evolving analytical framework, particularly in sectors facing long-term decline and consolidation pressures.

Wednesday, 29 April – 30 April – ECB expected to hold rates steady; a rate hike likelier in June

This week, the European Central Bank (ECB) will hold its next Governing Council meeting with markets widely expecting rates to remain unchanged at 2.00%, as policymakers continue to grapple with an increasingly complex and volatile macroeconomic environment, largely driven by geopolitics.

At its March meeting, the ECB opted for a “wait-and-see” approach, keeping rates on hold despite the early stages of the Middle East energy shock. As subsequently confirmed in the meeting minutes released last week, the decision was framed as one of prudence, with policymakers stressing that “there were many unknowns regarding how the energy and inflationary shock would unfold” and that “too little evidence” was available to assess medium-term implications. Holding rates steady was therefore seen as a way to preserve flexibility while avoiding premature tightening.

Since then, however, the backdrop has shifted materially. Headline inflation has accelerated, driven by rising energy prices linked to the Iran-related disruption, while growth risks have also intensified. Updated ECB projections already pointed in March to weaker medium-term growth, with additional downside risks stemming from potential supply chain disruptions and higher transport costs.

Recent data confirm this trend. Flash PMI figures for April released last Thursday indicate that euro area business activity has slipped back into contraction territory, with the composite index falling below the 50 threshold, reflecting weaker demand, particularly in services. At the same time, input cost pressures have surged to their highest levels since late 2022, indicative of the inflationary impact of the energy shock.

In this context, ECB communication has continued to emphasise optionality, reiterating that decisions will remain data-dependent and taken on a meeting-by-meeting basis, with no pre-commitment to a specific path. According to a recent Reuters poll (17–23 April), almost all surveyed economists expect no change this week, although a slight majority anticipate a rate increase in June as a precautionary response to persistent inflation risks. 

Thursday, 30 April – Eurostat to release flash inflation estimates for April

Despite not being factored in the upcoming decision, flash euro area inflation data due on 30 April, will be a key input for the ECB’s policy outlook following its meeting, particularly in shaping expectations for June. 

The release comes after a clear shift in price dynamics in March. Euro area annual inflation rose to 2.6%, up from 1.9% in February, while EU-wide inflation reached 2.8%. The increase was broad-based, with services remaining the largest contributor, alongside a renewed contribution from energy prices, marking a reversal from the earlier disinflationary trend. Food and non-energy industrial goods also added upward pressure, pointing to a more generalised price pickup.

Therefore, the April release will be closely watched to assess whether the March uptick marks the start of a more sustained trend or remains a short-term fluctuation. In particular, attention should be given to the evolution of services inflation and the extent to which price pressures remain broad-based across components.