European industrial competitiveness and decarbonisation policies: from ETS to CBAM

Voices from industry, particularly from the fuel manufacturing sector, warn that climate ambition must be aligned with Europe’s economic and industrial reality

The debate on European industrial competitiveness and climate ambition is intensifying as the European Union moves forward with its decarbonisation policies, from the Emissions Trading System (ETS) to the new Carbon Border Adjustment Mechanism (CBAM). Voices from industry, particularly from the fuel manufacturing sector, warn that climate ambition, such as the 2040 target and CO2 standards for vehicles, must be aligned with Europe’s economic and industrial reality. The ETS, launched in 2005, was the main instrument for putting a price on carbon within the EU. However, concerns about carbon leakage (the relocation of production to countries with laxer climate regulations) grew, especially in carbon-intensive sectors such as steel, aluminum, and fertilizers. Products imported into the EU came to embody around 40% of the EU’s consumption-based carbon footprint in 2022. This phenomenon, known as “climate dumping”, led the European Commission to propose the CBAM in 2021, breaking with historical skepticism towards border measures.

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