German Chancellor Friedrich Merz has defended Europe's industrial sector against the push for faster climate action, warning that environmental policies "must not endanger the industrial base." Speaking at the Petersberg climate dialogue in Berlin with ministers from more than 30 countries, Merz argued that transformations leading to deindustrialisation would lose public acceptance and stifle innovation.

His comments come as EU member states clash over the emissions trading system, with Italy calling for a freeze on cutting free carbon allowances for energy-intensive industries. The ETS-1 system faces a summer review, and Germany is advocating for a slower phaseout of free permits for sectors like steel and cement. Carbon prices have dropped to around €76 a tonne from over €100 earlier this year, with one market expert describing Germany's position as "very bearish" for carbon markets.

UN Secretary-General António Guterres told the summit that the Middle East conflict had triggered "the most severe energy crisis in a generation," while countries including Germany, Italy, India and South Korea have reverted to coal to address power shortages. The tension between energy security and climate goals is creating a fundamental divide across European industry.