The European Union has widened the safety-net that shields Europe’s heavy industry from the cost of carbon. The Commission amended its state-aid rulebook for the emissions trading system (ETS).
The change, announced on 23 December, enlarges the list of sectors that may claim public money to offset higher power prices caused by carbon permits. It also raises the ceiling on compensation for firms already covered.
The ETS forces electricity producers to buy allowances for every tonne of CO2 they emit. Generators pass much of that expense on through higher bills. Energy-hungry plants that compete with rivals abroad fear that squeeze most. If costs climb too far, production may shift to places with laxer climate rules—what Brussels calls ‘carbon leakage‘. The 2020 guidelines let governments reimburse a slice of the extra electricity bill to stop that exodus.
Since then the price of carbon has surged. The Commission says the risk of leakage now reaches industries once thought safe. Hence the update.
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More seats at the table
Twenty new sectors and two subsectors join the compensation roster. Among them are makers of organic chemicals, ceramics, glass and batteries. Their inclusion means they may reclaim part of their power costs from national treasuries, provided they meet the scheme’s conditions.
Firms already eligible gain, too. The maximum share of their indirect carbon costs that states may refund rises from 75% to 80%. Governments may also seek approval to aid other sectors if they can prove genuine exposure to foreign competition and soaring energy prices.
Large beneficiaries must now channel a slice of any subsidy into projects that lighten the load on the electricity system—say, investments that trim consumption or boost renewable supply. Brussels hopes that rule will keep the hand-outs from becoming a mere lifeline and instead spur decarbonisation.
A larger bill brings strings
Another tweak updates the CO2 emission factors used to calculate compensation for 2026-30. These factors measure the carbon content of the fossil fuels that feed each region’s power grid. Where the new numbers fall sharply, states may phase in the reduction over the five-year span, tempering sudden drops in support.
The guidance also repeats an old guardrail. Aid paid under the ETS rulebook may sit beside other green subsidies only if the sum of schemes stays below the relevant cap. That clause, insists the Commission, preserves a “level playing field” between firms and member states.
The first version of the ETS State-aid Guidelines entered force on 1 January 2021 and runs to 2030. Together with free allocation of emission allowances inside the ETS, the regime forms a central plank of Europe’s armour against industrial flight.
A rulebook in motion
Preparing the latest revision, the Commission waded through an impact assessment and public consultation. It found that dearer permits have altered the market’s “new reality”. The fresh text aims to reflect that shift without dulling the incentive to curb emissions.
For companies in the newly listed sectors, the message is simple. Relief is on offer, but Brussels still expects progress towards lower-carbon production. For taxpayers, the cost of holding industry at home just climbed.
