The European Commission has adopted an amendment to its guidelines on certain State aid measures linked to the EU’s greenhouse gas emissions trading system, responding to a higher risk of carbon leakage as carbon prices have risen in recent years.
The revised ETS State aid Guidelines update the framework governing compensation for energy-intensive industries exposed to higher electricity costs resulting from carbon pricing under the EU Emissions Trading System. The Commission said the changes are intended to safeguard industrial competitiveness while maintaining incentives for decarbonisation.
Carbon leakage occurs when companies relocate production outside the EU to jurisdictions with weaker climate constraints, or when EU-made goods are displaced by more carbon-intensive imports. While such shifts reduce economic activity within the bloc, they do not lower global emissions. The ETS State aid Guidelines allow Member States to compensate sectors genuinely at risk for part of the indirect emission costs embedded in electricity prices.
Since the guidelines were adopted in 2020, sustained increases in carbon prices have heightened exposure for some internationally traded sectors that were not previously considered at genuine risk. The Commission said the amendment is designed to ensure the compensation mechanism remains fair and effective, balancing protection against carbon leakage with continued incentives for investment in cleaner technologies.
Under the amendment, the Commission has extended eligibility for compensation to 20 additional industrial sectors and two new subsectors, including the manufacture of organic chemicals and certain activities in the ceramics, glass and battery value chains. Aid intensity for sectors already eligible has been increased from 75% to 80% to reflect their higher exposure.
Member States will also be able to notify sectors or subsectors not listed in the amended guidelines, provided they can demonstrate a genuine risk of carbon leakage. At the same time, large beneficiaries will be required to contribute to the green transition, including by investing part of the aid received in projects that help reduce electricity system costs.
The update also revises CO₂ emission factors and geographic reference areas for the 2026–2030 period, using the most recent data on the carbon intensity of electricity generation. To ease adjustment where changes are particularly large, Member States may apply a gradual transition between 2026 and 2030.
The ETS State aid Guidelines were first adopted in September 2020 as part of a broader overhaul of carbon leakage prevention tools linked to the EU ETS, including free allocation of emission allowances. They entered into force at the start of the current trading period in January 2021 and apply until 2030.
According to the Commission, the latest amendment builds on an extensive evaluation and impact assessment carried out under its Better Regulation framework, alongside consultations with stakeholders. It aims to reflect the new realities of energy markets and address heightened carbon leakage risks driven by higher carbon prices.
