The European Union (EU) is prioritising the restoration of industrial competitiveness, attracting investment, and securing the future of its energy-intensive industries through a significant revision of the EU Emission Trading Scheme (ETS). This reform is deemed crucial for shaping the investment and production landscape well into the 2030s. Stakeholders are urging the European Parliament and Member States to take adequate time for a thorough and thoughtful revision of the current legislative proposal, emphasising the importance of maintaining unconditional free allocation of allowances to protect against carbon leakage risks.
The EU’s energy-intensive industries are currently facing immense pressure from various challenges, including high energy costs, unfair trade practices, geopolitical uncertainties, weak demand, and a challenging investment environment. As a result, industrial production has seen a decline across several key value chains, and unlocking the necessary investments to transform Europe’s industrial base remains a daunting task. The EU must alleviate regulatory burdens, reduce operational costs, and create a viable business case for investments in decarbonisation to restore its international competitiveness and strategic autonomy.
The industries, which play a vital role in ensuring economic stability, are committed to transitioning towards climate neutrality. However, they require an EU-ETS review that supports ongoing investments and provides effective carbon leakage protection across entire industrial ecosystems. This review must align with the conditions necessary for investment, decarbonisation, and continued production in Europe.
Two fundamental issues need urgent attention in the ongoing reform process. First, the legislative process surrounding the EU-ETS review must reflect its strategic importance to Europe’s industrial base. The current timetable is deemed too short for a proper assessment of the reform, which could significantly impact the cost structure, investment decisions, and employment plans of numerous European companies for years to come. The quality of the reform should not be sacrificed for speed, as the consequences of hasty decisions could last for decades.
Second, stakeholders are calling for the preservation of free allocation as a safeguard against carbon leakage, without imposing new conditionality. The current proposal weakens the core purpose of free allocation by linking it to new investment obligations that apply solely to European companies, creating asymmetries with international competitors and undermining the financial capacity of companies to invest in decarbonisation. The necessary enabling conditions for investment, such as access to low-carbon energy, adequate infrastructure, and consistent demand for renewable products, cannot be created through arbitrary obligations imposed by the ETS.
In conclusion, Europe requires a workable and predictable ETS framework that facilitates investment, decarbonisation, and continued production. If EU institutions are serious about restoring industrial competitiveness, this ambition must be reflected in a regulatory framework that allows for thorough scrutiny and time for consideration, while ensuring that unconditional free allocation remains an effective safeguard against carbon leakage.
