Energy Intensive Industries: do they have a future in Europe?

The Alliance of Energy Intensive Industries issued recommendations in advance of the review of the EU Emissions Trading System (EU ETS):

• Strengthened Carbon Leakage Protection: ensure robust protection to all exposed sectors from direct and indirect carbon costs, both for domestic sales and extra EU exports. Conditional free allocation and punitive Cross-Sectoral Correction Factors (CSCFs) must be avoided. Indirect cost compensation remains crucial.
• Adjusted Decarbonisation Pace: The current Linear Reduction Factor (LRF) of 4.3% should be reviewed post-2030. The current trajectory, leading to a near-zero cap already by 2040, is deemed unrealistic as it would mean that industry has to be carbon-neutral by that date or stop production. More time is needed to deploy nascent low-carbon technologies and secure energy infrastructure. The overall ETS cap trajectory must be fundamentally reviewed.
• Realistic Benchmarks: Benchmarks for free allocation must be representative, technologically achievable, and economically viable, based on resources available across Europe.
• Free Allocation Share: increase the free allocation share of the ETS cap (currently 43%) to adequately reflect the different rates at which the industrial and power sectors are decarbonising.
• Adapt the MSR Functioning: stop the invalidation of allowances in the Market Stability Reserve (MSR) and allow them to be used to prevent CSCF or fund decarbonisation efforts. MSR intake/release rates should be reviewed to increase market liquidity.
• Competitive Energy Prices: develop a comprehensive energy strategy to ensure affordable, secure, and low-carbon energy for industry, including accelerated renewable deployment and robust infrastructure. The ETS impact on (direct and indirect) energy costs should be investigated.
• Financial and Permitting Support: drastically reduce bureaucratic hurdles for decarbonisation projects and redirect a greater portion of ETS auction revenues directly to support industrial decarbonisation (both CAPEX and OPEX).
• Leveraging New Technologies: explore the strategic use of high-integrity international credits and develop robust frameworks for carbon removals (DACCS, BECCS) and Carbon Capture and Utilisation (CCU), ensuring their recognition in the ETS.