A Clean Industrial Revolution in Europe
Posted on February, 25 2025
With the EU debating its 2040 climate target and an upcoming Clean Industrial Deal, now is the right time to look closely at the highly polluting sectors under the EU Emissions Trading System (ETS). To facilitate informed decision-making, it is important to assess the climate performance of companies in these sectors and how much state support they have received in recent years through both EU ETS free allowances and the Innovation Fund. This report sets out to provide this analysis.
Our investigation found out that enforcing the ‘polluter pays’ principle remains a pipe dream: around 40 billion euros were lost to free allowances in 2023 alone, instead of being invested in the urgently needed decarbonisation of ETS sectors.
Sectors such as steel, cement, and chemicals still received free allowances representing more tonnes of carbon dioxide than they actually emitted in 2023. Once again, a handful of companies make up the lion’s share of emissions in both the steel and cement sectors. This disparity results in huge variations in free allowances received. The worst performers were steel behemoth ArcelorMittal, which received over €3.8 billion in free allowances in 2023, and the cement giant Heidelberg, which received almost €2 billion.
These figures demonstrate that the current architecture of the EU ETS continues to reward heavy polluters by granting them free allowances instead of incentivising emissions reductions. This includes fossil fuel companies. For example, even though oil refining is one of the most polluting activities in the EU, it still received over 73
million free allowances in 2023, worth around €6 billion, enabling the sector to pollute at no cost to itself but at significant cost to the climate and society.
While initially set up to shield the EU from the risk of industrial conglomerates from relocating due to climate rules, this system has let heavily emitting companies off the hook for decades: while the energy sector has almost halved its CO2 emissions since 2013, the manufacturing industry only decreased its carbon pollution by less than 15% (and even less from sectors such as oil refining or cement).
Meanwhile, both a strong carbon price, and implementation of the Carbon Border Adjustment Mechanism (CBAM) as it was originally conceived, are key parameters to increase the budget of the Innovation Fund.
Delaying CBAM by two years, as some are now proposing, would deprive the Innovation Fund of about €20 billion of much-needed resources. For the year 2030 alone, around €9 billion would be lost to free allowances instead of being invested into industrial transformation.
To date, the Innovation Fund has mostly financed carbon capture and storage (CCS) and carbon capture and utilisation (CCU) projects, which should not be prioritised over technologies that directly reduce emissions, and instead only be used to tackle residual industrial emissions in targeted sectors, such as cement and lime. In fact, the analysis suggests that out of €6.4 billion (the total budget of the Innovation Fund from 2020-2022), more than €2.5 billion went directly into financing CCS and CCU projects.
Cement and chemicals were the top two sectors benefiting from the Innovation Fund. In fact, the cement sector received nearly €2 billion in grants (for the period 2020-2022),and was promised half a billion euros in grants for the year 2023.
Read the full report here
Sectors such as steel, cement, and chemicals still received free allowances representing more tonnes of carbon dioxide than they actually emitted in 2023. Once again, a handful of companies make up the lion’s share of emissions in both the steel and cement sectors. This disparity results in huge variations in free allowances received. The worst performers were steel behemoth ArcelorMittal, which received over €3.8 billion in free allowances in 2023, and the cement giant Heidelberg, which received almost €2 billion.
These figures demonstrate that the current architecture of the EU ETS continues to reward heavy polluters by granting them free allowances instead of incentivising emissions reductions. This includes fossil fuel companies. For example, even though oil refining is one of the most polluting activities in the EU, it still received over 73
million free allowances in 2023, worth around €6 billion, enabling the sector to pollute at no cost to itself but at significant cost to the climate and society.
While initially set up to shield the EU from the risk of industrial conglomerates from relocating due to climate rules, this system has let heavily emitting companies off the hook for decades: while the energy sector has almost halved its CO2 emissions since 2013, the manufacturing industry only decreased its carbon pollution by less than 15% (and even less from sectors such as oil refining or cement).
Meanwhile, both a strong carbon price, and implementation of the Carbon Border Adjustment Mechanism (CBAM) as it was originally conceived, are key parameters to increase the budget of the Innovation Fund.
Delaying CBAM by two years, as some are now proposing, would deprive the Innovation Fund of about €20 billion of much-needed resources. For the year 2030 alone, around €9 billion would be lost to free allowances instead of being invested into industrial transformation.
To date, the Innovation Fund has mostly financed carbon capture and storage (CCS) and carbon capture and utilisation (CCU) projects, which should not be prioritised over technologies that directly reduce emissions, and instead only be used to tackle residual industrial emissions in targeted sectors, such as cement and lime. In fact, the analysis suggests that out of €6.4 billion (the total budget of the Innovation Fund from 2020-2022), more than €2.5 billion went directly into financing CCS and CCU projects.
Cement and chemicals were the top two sectors benefiting from the Innovation Fund. In fact, the cement sector received nearly €2 billion in grants (for the period 2020-2022),and was promised half a billion euros in grants for the year 2023.
Read the full report here
