Thirteen European industry associations representing energy-intensive sectors, including chemicals, cement, metals, mining and glass, have called for revisions to the EU Emissions Trading System (ETS) to strengthen carbon leakage protection, maintain industrial competitiveness and support investments in decarbonization.
In a joint position paper titled A Competitive EU ETS for Industrial Decarbonization, the signatories include the European Steel Association (EUROFER), Cement Europe, the European Chemical Industry Council (Cefic), the Confederation of European Paper Industries (Cepi), the European Ceramic Industry Association (Cerame-Unie), the European Lime Association (EuLA), the European Association of Mining Industries, Metal Ores and Industrial Minerals (Euromines), the European non-ferrous metals association (Eurometaux), the European Expanded Clay Association (EXCA), Fertilizers Europe, the European fuel manufacturers' association (FuelsEurope), the International Federation of Industrial Energy Consumers (IFIEC Europe) and Glass Alliance Europe. The associations stated that the EU ETS must provide a predictable regulatory framework that enables companies to invest in low-emission technologies while maintaining industrial production and employment in Europe.
EU urged to maintain unconditional free ETS allowances
The signatories called for maintaining unconditional free allocation of emissions allowances, arguing that the mechanism is intended to protect European producers against carbon leakage rather than subsidize decarbonization investments. According to the joint statement, the existing benchmark-based allocation system already encourages emissions reductions by linking free allowances to the performance of the 10 percent least-emitting installations.
The associations warned that introducing additional investment-related conditions could result in companies losing free allowances when decarbonization projects cannot proceed because of insufficient infrastructure, financing, technological readiness or market demand. They also argued that such conditions would create unequal treatment between European producers and foreign competitors covered by the Carbon Border Adjustment Mechanism (CBAM), as the additional requirements would apply only to EU manufacturers.
Call for measures to prevent cross-sectoral correction factor activation
The associations also called for measures to prevent the activation of the cross-sectoral correction factor (CSCF), which reduces free allocation when demand for allowances exceeds the available allocation. According to the statement, applying the CSCF could further reduce allowances for industrial installations, including those already operating at relatively low emissions intensities, potentially weakening their competitiveness and investment capacity. To address this issue, the associations proposed revising the balance between free allocation and auctioning, including increasing the share of allowances available to industrial installations.
They argued that the existing allocation structure is based on emissions patterns established before 2013 and does not adequately reflect the different decarbonization pathways of the power and industrial sectors. The associations also recommended improving ETS benchmarking methodologies to ensure that emissions performance requirements remain technologically achievable and economically viable, taking into account sector-specific conditions and regional differences.
CBAM should protect exports and downstream industrial production
The joint statement emphasized that the EU CBAM must provide effective carbon leakage protection across entire industrial value chains, including European exports and downstream production. According to the associations, the gradual phaseout of free allowances for CBAM-covered sectors should follow a realistic transition pathway and depend on the mechanism's ability to establish fair competitive conditions between EU producers and international competitors facing lower carbon costs.
They also called for a permanent solution to protect the competitiveness of European exports in third-country markets, where EU producers may face carbon costs that are not imposed on competing manufacturers.
Full reinvestment of ETS revenues in decarbonization
According to the joint statement, only five percent of ETS revenues have so far been directed back to energy-intensive industries. The associations therefore called for auction revenues generated by installations covered under ETS1 to be fully reinvested in the decarbonization of existing ETS1 industrial facilities. They emphasized that funding should be provided on a technology-neutral basis, supporting both ongoing and new investments in low-emission technologies, production processes, materials and other industrial decarbonization projects.
The associations also emphasized the need to develop lead markets for renewable and low-carbon products to strengthen demand and improve the commercial viability of decarbonization investments. According to the joint statement, effective carbon leakage protection, predictable regulatory conditions, adequate financing and stronger market demand are essential to enabling European industries to decarbonize while maintaining industrial production within the EU.
