The Business for CBAM Coalition welcomes several elements of the European Commission’s proposal presented on 17 July to review the EU ETS1, including introducing conditionality that links access to free allocation to investment in industrial decarbonisation in the EU, provided these measures are designed in a pragmatic, detailed manner. The Coalition also supports the requirement for Member States to earmark a significant share of ETS revenues for decarbonising ETS sectors.
The Coalition also welcomes the establishment of the Industrial Decarbonisation Bank and the ETS Investment Booster. By offering output-based support calculated on avoided CO2 emissions, these instruments are critical to sustaining clean production through the scale-up phase and to closing the green premium. They should nonetheless be refined to allow participation by existing low-carbon production and installations under construction where production has yet to start.
We understand the Investment Booster support is likely to be paid out in allowances rather than capital, leaving the market risk of the ETS price with project developers. As a result, the Booster’s effectiveness will depend on maintaining a credible carbon price that remains market-based and insulated from political risk. Otherwise, support will be unpredictable and therefore not fully bankable for projects.
Alongside these positive elements, the Coalition is concerned that the proposed revision could weaken the business case for early-mover low-carbon investments. In particular, the combination of proposals to i) seriously lower the linear reduction factor, ii) allow the use of international credits, and iii) slow the phase-out of free allocation for CBAM-covered sectors to 2038 can significantly undermine the long-term appetite to invest.
We therefore call on co-legislators to consider the amendments below to the Commission proposal. The ETS1 still is the most cost-effective way for covered installations to reduce emissions. The reform should reward companies that invested early in decarbonisation, and whose business cases depend on a strong and predictable carbon price signal.
We therefore ask the EU co-legislators to consider the following policy asks:
- ETS Investment Booster – eligibility for projects under construction: Confirm that projects on which physical construction has already commenced, but which have not yet started operations, are eligible for the Booster, with the completion bond arrangements adjusted accordingly.
- ETS Investment Booster – eligibility for existing installations: Explicitly state that installations that have already brought low-carbon production online can access the ETS Investment Booster by providing eligibility and payment where a project does not involve the start of physical construction.
- ETS Investment Booster – accessibility for start-ups: Invite the Commission to foresee that the completion bond for startups and scaleups is funded by a public instrument at the Union level.
- ETS Investment Booster – eligibility: Align eligibility for the Booster with the scope of the Industrial Decarbonisation Bank set out in proposed Article 10cc(1), of which the Booster forms the first phase.
- Industrial Decarbonisation Bank – timeline and award criteria for CCfDs: Open the application period and launch the first competitive bidding round for Carbon Contracts for Difference in 2028, with disbursement still starting in 2031, and rank bids primarily on cost-effectiveness, measured as tonnes of CO₂ equivalent abated per euro of support.
- Linear Reduction Factor: Maintain the linear factor at 4.4% from 2031 to 2035, as provided by the legislation in force. It can be lowered after 2035 in line with the 2040 Climate Law.
- Use of ETS revenues by Member States: Raise the minimum share Member States must spend on decarbonising ETS sectors from 50% to 70%, and require the remaining revenues to be spent on the climate-related purposes the Directive sets out.
- Phase-out of free allocations for CBAM sectors: The Coalition’s preferred position is to maintain the phase-out trajectory of free allocation for CBAM sectors established by Directive (EU) 2023/959, with free allocation ending in 2034, by deleting the proposed slower trajectory.
- CBAM – EU ETS free allocation adjustment: Whatever phase-out trajectory for free allocation is finally adopted under the EU ETS, the CBAM free allocation adjustment applicable to imported goods must fully mirror it to ensure a level playing field.
- International Carbon Credits: Delete the facility for purchasing international credits, and set the linear factor from 2036 at 2.7%, the rate the Commission itself identifies as consistent with a 90% domestic reduction by 2040.
About the Business for CBAM Coalition
The Business for CBAM Coalition is a coalition of EU industrial companies and business associations that depend on a credible ETS1 and a watertight CBAM, spanning iron and steel (Outokumpu, SSAB, LKAB, Stegra, Hydnum Steel, GravitHy, INTERFER), cement (Ecocem, the Alliance for Low-Carbon Cement and Concrete), fertilisers (Fertighy), hydrogen (Renewable Hydrogen Coalition) and cleantech (Cleantech for Europe). Its membership is industry-only. Contact the secretariat via info@businessforcbam.eu