Kurt Vandenberghe, Director of the European Commission’s Directorate-General for Climate Action, delivered a message at the Annual Conference of the European cement industry (Cement Europe) held in Brussels at the end of October that could lead to an evolution in the European Union’s climate and industrial policy. According to Vandenberghe, the current trajectory of the ETS emissions cap, which is expected to fall to zero by 2039, thereby eliminating free emission allowances by that date, should be considered “prohibitive.”
The proposal provides for free EUAs to continue to be issued after 2039 and for a large part of the proceeds from ETS auctions to be used to finance decarbonization projects for energy-intensive industries. These statements represent the first public mention of the European Commission’s existing intention to review the ETS system, in particular the trajectory of allowances, ahead of the formal review scheduled for mid-2026. The Director-General’s proposal makes it clear that the change in the trajectory of EUA allowances will not, however, lead to an increase in the reduction efforts required of Member States, mainly because the use of complementary instruments to the ETS is predicted, allowing states to meet their environmental obligations without compromising the economy and competitiveness of their industries.
In this regard, the new ETS2 is expected to come into force in 2027, covering the road transport and heating sectors. The issue of maintaining competitiveness while achieving increasingly ambitious climate targets is crucial in the European Commission’s internal debates, particularly regarding the use of ETS revenues. It has been announced that in 2024, ETS auctions generated €39 billion, of which €25 billion went to Member States; however, only 5% of these resources are invested in industrial decarbonization. Vandenberghe said this percentage must increase and proposed creating an “Industrial Decarbonization Bank,” financed mainly through ETS revenues, to provide €100 billion to the sectors most difficult to decarbonize.
The cement sector is one of these, and he therefore proposed at Cement Europe that 75% of the sector’s ETS revenues, estimated at between €97 and €162 billion over 2023-2034, be reinvested in industrial decarbonization projects. In his speech, Vandenberghe also touched on the critical issue of international carbon credits, confirming that the Commission is assessing how they can contribute to the Union’s climate objectives. However, he raised doubts about their direct inclusion in the ETS, recalling the negative experience of the Kyoto Protocol, when the massive and uncontrolled importation of international credits caused carbon prices to collapse. What is considered possible in this area is the creation of a centralized public procurement mechanism to purchase these credits, thereby centralizing the system and making it more stable and controlled.
The European Commission is also considering integrating other technologies into the ETS, namely permanent carbon removal technologies such as Bioenergy with Carbon Capture and Storage (BECCS) and Direct Air Capture (DACCS). It is investing in research to understand how to use, monitor, and quantify the results of Carbon Capture and Utilization (CCU) processes to avoid double-counting compared to fossil fuels. Following these statements, to adequately prepare for COP30, which was from 10 to 22 November, the Union convened an extraordinary Environment Council meeting on November 4.
The Council confirmed the agreement on the Commission’s proposal to reduce emissions by 90% by 2040. The Council decided that high-quality international credits could contribute up to 5% to the 2040 target from 2036 onwards, and the explicit ban on using offset credits in the ETS system was removed. Credits could be used from 2036 onward, but for 2031-2035, “a pilot period could be considered.” Permanent carbon removals should therefore play a role in the ETS to offset emissions that are difficult to reduce. The Council also agreed on greater flexibility between sectors and between instruments. Ministers then approved the European Union’s NDC (Nationally Determined Contribution), presented at COP30, covering the period up to 2035.
The need for environmental objectives not to compromise the competitiveness of European businesses is indeed a topic of great debate in the EU, and many policies are being implemented in this regard, as demonstrated by the recent CBAM measures. In relation to the CBAM, the Commission has finally published in the Official Journal of the European Union the amended regulation on its simplification and strengthening, which has now entered into force. The new rules aim to improve the instrument’s effectiveness, prevent carbon leakage, and minimize the impact on small operators. Companies importing less than 50 tons of goods subject to the CBAM, which are mainly SMEs and private individuals, will now be exempt from the mechanism’s obligations, which will nevertheless remain effective as it will continue to cover over 99% of the emissions covered by the system. For companies that remain subject to the scheme, the Commission has simplified the authorization procedures, emissions calculation, and reporting, seeking to make the policy more pragmatic and accessible.
All these measures, especially in view of the ETS review in 2026, serve to recognize that environmental objectives cannot be considered separately from maintaining competitiveness and industrial growth. “Climate policy is becoming industrial policy,” said the Director General, closing Cement Europe. “The debate today focuses on the conditions that make this process possible and how the 2040 target can become the basis for a new European industrial policy.”