EU Fights Carbon Leakage with New Aid Rules

The European Commission announced on Tuesday that it will permit more energy-intensive industries to receive financial compensation to offset the costs associated with adhering to EU emissions standards. This policy adjustment is designed to bolster the competitiveness of European companies and deter them from relocating their operations to regions outside the EU with less stringent environmental regulations.

These revised guidelines, which loosen previous state aid restrictions, will enable member states to compensate industries for a portion of their increased electricity expenses stemming from carbon pricing. The Commission indicated that these measures are crucial for preventing 'carbon leakage,' a phenomenon where production shifts to countries with weaker environmental constraints or where imports with a larger carbon footprint displace EU goods.

Significantly, the list of industrial sectors eligible for compensation under the EU's emission trading system has been expanded to encompass twenty additional sectors. This includes the production of organic chemicals, as well as specific activities within the ceramic, glass, and battery manufacturing industries. The Commission justified this expansion by noting the substantial rise in emission costs in recent years, which has placed a greater number of sectors at risk of carbon leakage.