The European Commission has adopted a major amendment to its guidelines on state aid for greenhouse gas emissions under the EU Emissions Trading System (ETS), aiming to shield more energy-intensive industries from the risk of relocating production abroad due to soaring carbon costs.

 

As highlighted in the European Chemicals Industry Action Plan, the amendment “addresses the increased risk of carbon leakage for additional energy-intensive industries, due to the sustained rise of emission costs under the EU Emissions Trading System (ETS) in the last years.” The move is designed to “contribute to the competitiveness of EU industry while incentivising their decarbonisation.”

 

The ETS State aid Guidelines are designed to prevent so-called carbon leakage – when companies move production outside the EU to countries with weaker emission limits, or when EU products are replaced by more carbon-intensive imports. This not only shifts economic activity away from the EU but fails to reduce global greenhouse gas emissions.

 

The guidelines allow Member States to compensate sectors at genuine risk of carbon leakage for part of the high electricity costs driven by carbon prices – known as ‘indirect emission costs.’ 

 

“The sustained rise in emission costs since the adoption of the ETS State aid Guidelines in 2020 has significantly increased the risk of carbon leakage for sectors that are exposed to international competition, but were not considered at genuine risk at that time,” the Commission said.

 

The guidelines also ensure a level playing field, specifying that aid under these measures can be combined with other support schemes without exceeding the maximum aid intensity or amount.

 

The Commission’s amendment includes several major changes like expansion of eligible sectors, with 20 new sectors and two subsectors will now qualify for compensation, including the manufacture of organic chemicals and activities in the ceramic, glass, and battery industries.

 

For sectors already eligible before the amendment, aid intensity rises from 75% to 80% to reflect their heightened risk of carbon leakage. Member States can propose additional sectors or subsectors if they can prove a genuine risk of carbon leakage.

 

Large beneficiaries must contribute to decarbonisation by investing part of the aid in projects that reduce electricity system costs. Moreover, geographic areas and CO2 emission factors have been revised for 2026–2030. These figures determine compensation levels and allow for a gradual transition where emission factor reductions are particularly large.

 

The Commission said the update ensures “the ETS indirect compensation mechanism remains equitable and efficient, by maintaining an effective protection for certain sectors against carbon leakage while preserving their incentives to invest in decarbonisation.”