The Business for CBAM Coalition takes note of recent announcements by the European Commission President at the 19 March European Council on the EU ETS (ETS1) to introduce an ETS investment booster worth EUR 30 billion.
A level playing field for innovative industries needs to be the starting point for any public support in the transformation of industry. This requires a focus on EU-level instruments that enable the scale-up of fossil-free technologies in order to preserve fair access and competition between EU member states. In this context, the Business for CBAM Coalition welcomes the intent of the Booster, as long as it aims to provide effective financial support for industrial decarbonisation and is designed to ensure such a level playing field:
On the funding criteria of the Booster, we believe there should be strong conditionality:
- First and foremost, the Booster should also be open to non-ETS installations carrying out ETS activities, in order to not disadvantage companies that have ready-to-go solutions and who have reached FID, but who aren’t yet covered by the ETS.
- Provide funding from the Booster in other forms of support than is done under the Innovation Fund. Examples include output-based support for actual low-carbon production or below-market rate loans. This would make the funding a lot more effective and benefits all those bringing new low-carbon production online, be they incumbents or newcomers.
- Prioritise projects with mature execution profiles. A meaningful share of the Booster envelope should be reserved for projects able to demonstrate Final Investment Decision (FID) readiness within a defined window (for example, 12 months from award). This would avoid replicating the capital lock-up described below in relation to the Innovation Fund, where billions sit tied up in projects that ultimately might never reach FID. Rewarding execution maturity would ensure the Booster delivers real decarbonisation impact in a reasonable timeframe.
- Production should not bring about incremental improvements, but substantial CO2 reductions. What defines low-carbon?:
- For sectors where definitions exist, such as hydrogen and its derivatives (e.g. ammonia), existing definitions should be applied (e.g. RFNBO delegated act and low-carbon hydrogen that ask for -70% CO2 reductions compared to a fossil fuel alternative).
- For sectors where labels do not yet exist, a meaningful target of at least 50% CO2 reductions compared to the relevant ETS benchmark could be used (a special consideration can be made for fallback benchmarks). This is just a reference, because the Booster’s support should be available to also cleantech producers, not just ETS installations.
On the funding source of the Booster, we understand that the New Entrants Reserve (NER) could be the main funding stream. The NER is a pot of free allocation destined for new ETS installations. According to a recent analysis by ICIS (not public), there are more than 500 million allowances in the NER, virtually unused in past years. Several cleantech producers starting operations are expected to enter the ETS. Therefore, provided that sufficient EUAs stay available for new ETS installations, we consider the NER a more logical funding source compared to the aforementioned MSR allowances – which we think should not be considered as a funding source.
A second source could be the Free Allocation Buffer, which is a buffer that was once created to top up free allocation for industry to prevent the Cross-Sectoral Correction Factor (CSCF) from being triggered. It is equal to 3% of the 2021-2030 stationary cap and while part of it is expected to be drawn down between 2026-30, a significant volume is projected to remain available.
A third and final source could come from the ETS1 revenues that were supposed to go to the Member States, as these revenues are currently insufficiently earmarked for industrial decarbonisation – only 5% of the €16.4 billion in revenue reported as generated and disbursed in 2024 for Article 10(3) purposes according to the European Commission. If this third source (national ETS1 revenues) cannot be used for the Booster, then the Commission should propose to earmark 100% of national EU ETS revenues for supporting industrial decarbonisation, grid expansion and renewables investment.