AEGIS Europe calls for a permanent, WTO-compatible, export solution within the ETS review
Discussions on the CBAM regulation review, the Temporary Decarbonisation Fund (TDF) and the broader review of the EU ETS are progressing at a rapid pace and are entering a critical phase. The ETS is a key file for European energy intensive industries and the European economy as a whole. Against this background, AEGIS Europe would like to put forward the following recommendations to ensure that the evolving framework effectively addresses carbon leakage risks while safeguarding the competitiveness of European industry: the pace of the legislative discussions should not come at the expense of a thorough assessment of the different proposals and their cumulative impact on European industry.
The treatment of CBAM sectors is an important element of the ongoing ETS review. In particular, the phase-out of free allocation for these sectors requires careful consideration, as CBAM remains a new and largely untested instrument. The Commission’s proposal to reintroduce 15% of the free allocation phased out under the CBAM factor is a welcome acknowledgement that residual carbon leakage risks remain. However, a fixed 15% level does not adequately reflect the different export exposure of individual sectors. Free allocation should instead be calibrated to the actual share of production exported to third countries, thereby providing proportionate protection against export-related carbon leakage while preserving the integrity of the EU ETS.
In addition, the Temporary Decarbonisation Fund does not provide a satisfactory solution, as it is temporary, its funding remains uncertain, and the level of support is not linked to actual export exposure. In particular, the TDF should primarily compensate EU exporters of CBAM‑covered goods in order to mitigate the risk of product reshuffling. In a second step, it should support EU downstream exporters using CBAM‑covered inputs that face a significant cost increase due to higher embedded carbon costs of imported precursors. Compensation will have to be brought forward to 2027 and earmarking a clearly defined financial allocation for the most exposed sectors.
However, the TDF cannot substitute a long-term structural solution for EU export sectors impacted by CBAM. The European Commission should therefore provide dedicated financial support within the forthcoming EU Multiannual Financial Framework, providing long‑term certainty for EU producers. As free allocation declines and CBAM costs materialise, export-oriented sectors face increasing competitiveness pressures in third-country markets.
A long-term solution needs to be proposed urgently and compensate EU exporters for increased ETS and raw material costs. The increased costs CBAM will generate for importers of CBAM covered goods should be acknowledged and compensated as well. Export adjustments must be part of the CBAM design to ensure that European exports do not become uncompetitive on foreign markets. This long-term solution should reflect the free allocation phase out trajectory, maintain decarbonization incentives, and be explicitly linked to export exposure. It should be included in the ETS review proposal. AEGIS Europe proposed a WTO-compatible solution.
An export solution is justified not only on the grounds of industrial competitiveness, but also by the need to preserve environmental integrity. A structural export solution is essential to ensure that the EU’s climate ambition strengthens, rather than undermines, its industrial base.