EU/EEA

Announced in February 2025, the Clean Industrial Deal is the EU’s overarching policy initiative focused on improving EU competitiveness and achieving decarbonisation. Key elements of the Clean Industrial Deal include: 

• A new Industrial Decarbonisation Accelerator Act to increase demands for EU-made low carbon products by changing procurement rules.
• Changes to State Aid rules to facilitate more investment in low carbon projects by member states.
• Establishment of an industrial decarbonisation bank, using revenues from the ETS, to invest in industrial decarbonisation projects, with a target of €100bn in funding over a five year period.

Further information: Clean Industrial Deal

The Net-Zero Industry Act, finalised in 2024, has several key CCS-related provisions. Most notably, it introduced a target of 50m tonnes of CO₂ injection capacity to be developed by 2030, to be achieved in part with compulsory contributions from oil and gas producers in the EU, via a variation of a Carbon Takeback Obligation.

Further information: https://single-market-economy.ec.europa.eu/industry/sustainability/net-zero-industry-act_en

The CBAM, which will take full effect from 1 January 2026, applies an additional charge on imports to the EU for products in certain sectors, depending on their carbon intensity. It works as follows:

EU importers will declare embedded emissions of relevant imports, and will surrender CBAM certificates to cover the total.

CBAM certificates are purchased from national authorities, and reflect a weekly average of auction price for EU ETS allowances.

If the imported good already paid a carbon price in its country of origin, then this is deducted from the liability.

CBAM covers the iron & steel, aluminium, cement, fertilisers, electricity and hydrogen sectors, with a detailed list of covered products available here.

CBAM is designed to effectively protect EU-based producers in these sectors from lower cost, higher-carbon intensity competition from outside the EU. It can be conceptualised as effectively exporting the EU ETS to non-EU producers which export to the EU in the relevant sectors.

Further information: Carbon Border Adjustment Mechanism

The EU Emissions Trading System:

• Set up in 2005, is the world's first international emissions trading system.
• Operates in all EU countries plus Iceland, Liechtenstein and Norway.
• Limits emissions from around 10,000 installations in the power sector and manufacturing industry, as well as airlines operating between these countries.
• Covers around 40% of the EU's greenhouse gas emissions.

The EU ETS works on the 'cap and trade' principle. A cap is set on the total amount of certain greenhouse gases that can be emitted through the installations covered by the system. The cap is reduced over time so that total emissions fall. Within the cap, installations buy or receive emissions allowances, which they can trade with one another as needed.

After each year, an installation must surrender enough allowances to cover its emissions fully, otherwise, heavy fines are imposed. If an installation reduces its emissions, it can keep the spare allowances to cover its future needs or sell them to another installation that is short of allowances.

The EU ETS covers the following sectors and gases:

• Carbon dioxide (CO₂) from
  • electricity and heat generation,
  • energy-intensive industry sectors including oil refineries, steel works, and production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and bulk organic chemicals,
  • commercial aviation within the European Economic Area.
  • Maritime emissions for journeys to or from the EU, charged at 50% of total emissions if only departing or arriving in an EU port, charged at 100% for journeys between 2 EU ports,
• Nitrous oxide (N₂O) from the production of nitric, adipic and glyoxylic acids and glyoxal;
• Perfluorocarbons (PFCs) from the production of aluminium.

Free allowances, which are distributed to industries at risk of ‘carbon leakage’ whereby more polluting competitors can undercut them on cost, are being gradually phased out. Instead such industries will be protected by the Carbon Border Adjustment Mechanism (CBAM).

Further information: EU ETS, Fit for 55: reform of the EU emissions trading system