Shaping a Competitive and Sustainable Future for European Energy-Intensive Industries under the EU ETS Post-2030

The undersigned Energy-Intensive Industries (EIIs) support the European Union's ambition to achieve climate neutrality by 2050 and the intermediate target of at least 55% net greenhouse gas (GHG) emission reduction by 2030. This transition will require breakthrough technologies, significant investments and an enabling policy framework. The EU Emission Trading Scheme (ETS) is a cornerstone of this policy mix but additional enabling conditions are indispensable, such as availability of low-carbon energy sources, massive investments in grids developments and demand-side markets effectively valuing renewable and low-carbon products. If these enabling conditions are not met, full decarbonisation is impossible, regardless of the content of the revised ETS Directive.

As the EU looks towards the post-2030 ETS framework, it is imperative that the revised system safeguards the global competitiveness of European EIIs by maintaining robust carbon leakage protection while enabling the massive investments required for the transition. Critically, a simple extrapolation of the existing ETS cap reduction beyond 2030 implies that this cap would reach zero around 2040, which is about 10 years before the decarbonisation target as set in the EU Climate Law. This is unrealistic as it would mean that industry needs to be fully carbon-neutral by around 2040 or stop production. At the same time, the renewable and lowcarbon energy sources required for decarbonisation – such as renewable and low-carbon hydrogen, low-carbon electricity, and biogas – are not available at the necessary scale and internationally competitive costs. Neither are vital infrastructures for such energy carriers and for CO₂ in place – or even under planning/construction. These exogenous factors should be taken into account when defining the decarbonisation timeline and trajectory for energyintensive industries under the EU ETS. While the system has been effective in delivering early emissions reductions, it does not currently provide a viable business case for the decarbonisation of energy-intensive industries in the EU.

The undersigned Energy-Intensive Industries (EIIs) urge the European Union to revise its Emission Trading Scheme (ETS) post-2030 to ensure continued industrial competitiveness and realistic decarbonisation pathways.

Key recommendations developed in this paper include:

• Strengthened Carbon Leakage Protection: ensure robust protection to all exposed sectors from direct and indirect carbon costs, both for domestic sales and extra EU exports. Conditional free allocation and punitive Cross-Sectoral Correction Factors (CSCFs) must be avoided. Indirect cost compensation remains crucial.
• Adjusted Decarbonisation Pace: The current Linear Reduction Factor (LRF) of 4.3% should be reviewed post-2030. The current trajectory, leading to a near-zero cap already by 2040, is deemed unrealistic as it would mean that industry has to be carbon-neutral by that date or stop production. More time is needed to deploy nascent low-carbon technologies and secure energy infrastructure. The overall ETS cap trajectory must be fundamentally reviewed.
• Realistic Benchmarks: Benchmarks for free allocation must be representative, technologically achievable, and economically viable, based on resources available across Europe.
• Free Allocation Share: increase the free allocation share of the ETS cap (currently 43%) to adequately reflect the different rates at which the industrial and power sectors are decarbonising.
• Adapt the MSR Functioning: stop the invalidation of allowances in the Market Stability Reserve (MSR) and allow them to be used to prevent CSCF or fund decarbonisation efforts. MSR intake/release rates should be reviewed to increase market liquidity.
• Competitive Energy Prices: develop a comprehensive energy strategy to ensure affordable, secure, and low-carbon energy for industry, including accelerated renewable deployment and robust infrastructure. The ETS impact on (direct and indirect) energy costs should be investigated.
• Financial and Permitting Support: drastically reduce bureaucratic hurdles for decarbonisation projects and redirect a greater portion of ETS auction revenues directly to support industrial decarbonisation (both CAPEX and OPEX).
• Leveraging New Technologies: explore the strategic use of high-integrity international credits and develop robust frameworks for carbon removals (DACCS, BECCS) and Carbon Capture and Utilisation (CCU), ensuring their recognition in the ETS.