<- Back
Summary

Does the EU ETS harm industrial competitiveness?

Summary

The EU ETS uses policy tools like the Carbon Border Adjustment Mechanism (CBAM) and targeted proceeds redistribution to drive decarbonization while protecting EU industry competitiveness. These mechanisms address carbon leakage and support the transition to sustainable practices, ensuring industries remain competitive internationally amid carbon costs and the move towards green finance.

Return to Blog
Sommaire
Book a call

The European Union Emissions Trading Scheme (EU ETS) is not here to threaten local businesses. It is a sophisticated policy tool that delivers lasting decarbonization while having the necessary mechanisms to protect EU industry competitiveness.

Decarbonization is costly

Decarbonizing industries is inherently costly, and these costs vary not only within sectors but also from one region to another. Energy-intensive industries, such as aluminum, steel, and cement, are particularly vulnerable to these costs. It has been proven that carbon leakage—where companies relocate to countries with less stringent emissions regulations—can occur due to the EU ETS. So, it is legitimate to consider a potential risk to industrial competitiveness. Are some industries more advantageously positioned after facing carbon costs? Is leaving the EU and relocating a better option? The EU ETS is engineered to tackle these challenges.

Free allocations and competitiveness concerns 

For a long time in the past, free EUAs (European Union Allowances) were distributed to target the most threatened sectors and mitigate the impact of the EU ETS on their competitiveness. This made sure those sectors at risk of carbon leakage were “protected” and kept operating on EU ground. The power sector, less vulnerable to relocation, saw its free allocations decrease faster. However, this was only a temporary solution - free allocations are now being phased out and industrial decarbonization is at the center stage.

The role of the CBAM

The Carbon Border Adjustment Mechanism (CBAM) is an important reform in the EU ETS that will succeed free allowances and keep defending EU competitiveness. CBAM imposes a carbon cost on imported goods, ensuring that producers outside the EU face similar emissions costs. This levels the playing field by preventing non-EU producers from gaining an unfair advantage due to lower carbon costs. By doing so, CBAM aims to protect EU industries from carbon leakage.

A more targeted proceeds redistribution towards the industry

The proceeds from the sale of EUAs are increasingly being targeted towards the industry. These funds finance green projects that support the transition to sustainable practices. And by better targeting these projects, the EU ETS can contribute more effectively to the industrial sector's decarbonization, while also making sure that industries remain competitive on the international stage.

The EU ETS is continually improving, with adjustments made over time to address real market conditions. The transition from free EUAs to the CBAM is just one example of how the system is gradually evolving.

Do you like this article?

Share it with your network and introduce Homaio to those interested in impact investing!

The Homing Bird

A newsletter to help you understand the key challenges of climate finance.

Sign up to our newsletter

Utimate guide to carbon markets

Dive into the world of carbon markets, where economics, finance, and environmental science converge. Get your ultimate guide now.

Thank You !
Find our guide with the following link 👉
Download whitepaper
Oops! Something went wrong while submitting the form.
White Paper homaio

Do you like this article?

Share it with your network and introduce Homaio to those interested in impact investing!

Understanding in depth

Responsible Savings Barometer: The French and Responsible Investment
May 14, 2025

Responsible Savings Barometer: The French and Responsible Investment

This article analyzes the findings of the Responsible Savings Barometer in France, highlighting the increasing awareness of environmental and social issues among the French regarding their savings. It reveals a gap between this interest and actual understanding of responsible investment products, while also exploring emerging solutions like carbon allowance purchases as a direct way to impact climate change. The piece emphasizes the need for greater transparency, education, and clearer regulations to foster the growth of truly transformative responsible savings.

Decrypting Trump’s impact on Climate - Part 2
May 14, 2025

Decrypting Trump’s impact on Climate - Part 2

Trump's climate action reversal shifts the global landscape, empowering China in green tech and challenging Europe's climate leadership and industrial competitiveness, while emerging markets face financing and policy uncertainty for sustainable investment and responsible investing. This impacts markets, repricing climate risk and creating volatility, requiring European investors to focus on technological sovereignty, socially responsible investments (SRI), green finance and ethical investments.

Recent Changes to the CBAM: What Impact for Investors?
May 14, 2025

Recent Changes to the CBAM: What Impact for Investors?

The EU's Carbon Border Adjustment Mechanism (CBAM) aims to prevent carbon leakage by applying a carbon price to imported goods, but faces criticisms regarding protectionism, implementation complexity, and revenue allocation. Iterative improvements, similar to the EU Emissions Trading System (EU ETS), are crucial for addressing these shortcomings and ensuring the CBAM effectively promotes green finance and responsible investment. This green finance initiative presents both opportunities and challenges for investors navigating regulatory uncertainties in the European carbon market.

Understanding in depth

No items found.

You might also like

Responsible Savings Barometer: The French and Responsible Investment
May 14, 2025

Responsible Savings Barometer: The French and Responsible Investment

This article analyzes the findings of the Responsible Savings Barometer in France, highlighting the increasing awareness of environmental and social issues among the French regarding their savings. It reveals a gap between this interest and actual understanding of responsible investment products, while also exploring emerging solutions like carbon allowance purchases as a direct way to impact climate change. The piece emphasizes the need for greater transparency, education, and clearer regulations to foster the growth of truly transformative responsible savings.

Decrypting Trump’s impact on Climate - Part 2
May 14, 2025

Decrypting Trump’s impact on Climate - Part 2

Trump's climate action reversal shifts the global landscape, empowering China in green tech and challenging Europe's climate leadership and industrial competitiveness, while emerging markets face financing and policy uncertainty for sustainable investment and responsible investing. This impacts markets, repricing climate risk and creating volatility, requiring European investors to focus on technological sovereignty, socially responsible investments (SRI), green finance and ethical investments.

Recent Changes to the CBAM: What Impact for Investors?
May 14, 2025

Recent Changes to the CBAM: What Impact for Investors?

The EU's Carbon Border Adjustment Mechanism (CBAM) aims to prevent carbon leakage by applying a carbon price to imported goods, but faces criticisms regarding protectionism, implementation complexity, and revenue allocation. Iterative improvements, similar to the EU Emissions Trading System (EU ETS), are crucial for addressing these shortcomings and ensuring the CBAM effectively promotes green finance and responsible investment. This green finance initiative presents both opportunities and challenges for investors navigating regulatory uncertainties in the European carbon market.

You might also like

No items found.