BRUSSELS ¨C Steelmaker SSAB is spending €6 billion ($6.8 billion) to upgrade its operations, switching from coal to low-carbon hydrogen in a bet that European Union policies would reward lower-emission production and help it outcompete more polluting rivals.

But the Swedish company is among a group of industrial companies concerned that an EU proposal to overhaul the emissions trading system, Europe¡¯s main policy for reducing the CO2 emissions heating the planet, will weaken the scheme, eroding the advantage for low-carbon early movers. ¡°Companies that have not invested might actually get an advantage,¡± said Helena ?Norrman, executive vice president of communications at SSAB.

The debate exposes a core dilemma in Europe¡¯s climate strategy: whether policymakers will hold the line on carbon pricing, or will ?they yield ?to political pressure and help heavy polluters struggling with high energy bills and global competition.

The ETS is the EU¡¯s flagship climate ?change policy. Since 2005, it has required heavy industries and power plants to buy CO2 permits when they emit, creating a financial incentive to invest in less-emitting technologies.

The long-planned changes to the ETS, aimed at aligning the system with the EU¡¯s 2040 climate goal agreed last year, are taking place during a political backlash against Europe¡¯s green agenda, which ?some leaders, including Italy¡¯s Giorgia Meloni and Poland¡¯s Donald Tusk, argue is eroding industrial competitiveness. ¡°How do you make this system compatible with the current competitiveness pressures and security pressures?¡± said Simone Tagliapietra, senior ?fellow at think tank Bruegel, of the challenge facing EU policymakers. Commission officials have signaled willingness to soften the scheme, for example, by giving companies additional free CO2 permits to reduce their carbon bill.

Carbon prices under the ETS have risen sharply over the past decade, with permits trading ?at around €80 per metric ton currently, up from below €10 in the ?2010s, a shift that has helped justify large-scale investments in cleaner technologies.

At around $100 per ton, low-carbon industrial technologies such as electric heat production begin to compete with conventional methods, Goldman Sachs estimates.

¡°It provides a carbon price signal, which is necessary for us ?to make large-scale transformative investments viable,¡± ?said Winston Beck, vice president of group public affairs at cement maker Heidelberg Materials, which has invested in lower-carbon raw ?materials and carbon capture technology.

Building insulation manufacturer Rockwool has made similar bets, developing electric melting technology to replace fossil fuels in its factories.

¡°People saw ?what was coming ?for the ETS,¡± its head of EU affairs Brook Riley said.

A weakened ETS could up-end that plan. ¡°If we invest a hundred million euros per factory in electrifying and suddenly the case for that is undermined ... it could yank the carpet from under companies¡¯ feet,¡± he said.

BASF, ArcelorMittal and thyssenkrupp have called for ¡°immediate action to halt the escalation of ETS-related costs,¡± warning in a June 16 letter to EU leaders, seen by Reuters, that Europe risks acting largely alone in ?raising carbon prices. BASF, Europe¡¯s largest chemicals producer, used efficiency gains and fuel switching to halve its emissions since 1990, but said options for deeper CO2 cuts such as low-carbon hydrogen and electrification mostly do not make economic sense.

¡°We are entering a much more challenging world now, with the low-hanging fruit pretty much gone,¡± a BASF spokesperson said. In its current form, the ETS ¡°is not driving us to the next stage of new technologies, they are far too expensive, and the CO2 price is too high to bear for an industry that is facing ?a global ?competition,¡± the spokesperson added.

At the heart of the debate is an uncomfortable political reality: The ETS is designed to ?create winners and losers.

For investors, the carbon price helps identify which companies are likely to gain a competitive edge, but policy reversals risk blurring that signal.

¡°Having policy flip-flops and reversals ?makes that pretty tricky,¡°?said Andy Howard, global head of sustainable investment at Schroders. ¡°There¡¯s a real danger that investors don¡¯t have the ability to confidently allocate our clients¡¯ capital.¡±

The ETS covers about 40% of EU emissions, meaning any rollback would have wide economic implications.

While some low-carbon technologies, such as wind and solar, can compete without high carbon prices, others may struggle to attract funding without a clear incentive to move away from fossil fuels.

¡°To take that away ... would be a ?very strong signal to the market that this is not important¡°, said David Frykman, general partner at venture capital firm Norrsken.

¡°If we can¡¯t see the price development, and we can¡¯t trust it, then any business that is dependent on that becomes much more volatile,¡°?he said.

As pressure mounts on the Commission ahead of its July 15 proposal, SSAB and others warn that dismantling the ETS will not resolve competitiveness challenges rooted in high energy costs, infrastructure gaps and geopolitical uncertainty.

¡°It¡¯s important not to try to fix that with the ETS, because it¡¯s not going to work,¡°?said SSAB¡¯s Norrman.