Thirteen European industry associations have called for reform of the EU Emissions Trading System (EU ETS) to strengthen protection against carbon leakage to countries with less stringent climate rules. Their proposals include retaining free allowances, directing auction revenues to decarbonisation and taking export competitiveness into account.
The joint position paper, “A Competitive EU ETS for Industrial Decarbonization,” was signed by associations representing the steel, cement, chemicals, paper, ceramics, lime, mining, non-ferrous metals, fertiliser, fuel and glass industries, as well as IFIEC Europe and EXCA. The signatories say the system must provide predictable conditions for investment in low-carbon technologies while supporting production and employment in Europe.
Call to retain free allowances
The associations support keeping free allowances unconditional. They argue that the mechanism is intended to protect European producers from carbon leakage, not to subsidise decarbonisation investment. The current benchmark-based system already encourages emissions cuts: free allowances are linked to the performance of the 10% least emissions-intensive installations.
Additional investment-related conditions could cause companies to lose allowances when emissions-reduction projects cannot proceed because of insufficient infrastructure or financing, immature technologies or inadequate demand. In the signatories’ view, such requirements would also put European producers at a disadvantage compared with foreign competitors covered by the Carbon Border Adjustment Mechanism (CBAM).
The associations also proposed preventing the activation of the cross-sectoral correction factor (CSCF). It cuts free allocation when demand exceeds the available supply and could further reduce allowances for industrial plants, including those already operating with low emissions intensity. As a remedy, the groups propose revising the balance between free allocation and auctioning, increasing the share available to industry.
The signatories say the current allocation structure is based on emissions data from before 2013 and does not adequately reflect the different decarbonisation pathways of the power and industrial sectors. They want ETS benchmarks updated so that requirements are technically achievable and economically viable, taking account of sector-specific conditions and regional differences.
CBAM and decarbonisation funding
CBAM, the paper says, must protect entire industrial value chains against carbon leakage, including European exports and downstream production. The gradual phaseout of free allowances in CBAM-covered sectors should follow a realistic timetable and depend on whether the mechanism creates fair competitive conditions. The associations also call for a permanent solution to protect EU exports in third-country markets, where competitors may not face comparable carbon costs.
According to the joint statement, only 5% of EU ETS revenues have so far been directed back to energy-intensive industries. The signatories want all auction revenues under ETS1 to be reinvested in decarbonising existing industrial facilities. Funding should be technology-neutral and support both ongoing and new projects, from low-carbon technologies and production processes to materials.
To make these investments commercially viable, the associations also urge the development of markets for renewable and low-carbon products. The paper says industry needs effective protection against carbon leakage, predictable rules, access to financing and sustained demand.
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