The European Commission has presented proposals for changes to the EU ETS system which, according to its declarations, are intended to reduce some of the burdens borne by European industry and increase funding for the transformation. The Polish Chamber of Chemical Industry believes that the draft includes solutions addressing some of the demands raised by the chemical sector, but it stresses that their actual significance will only be determined by detailed provisions and specific legislative solutions. The revision of the system is important not only for the chemical industry, but also for other energy-intensive sectors, because the final shape of the regulations will affect companies' operating costs, their ability to carry out decarbonisation investments, as well as the conditions for maintaining production and jobs in the European Union. According to PIPC, the system should encourage emission reductions while also taking into account the availability of technologies, the financial capacity of companies and the realities of global competition.
Tomasz Zieliński, PhD Eng., president of the management board of the Polish Chamber of Chemical Industry, said that "the revision of the EU ETS is a step in the right direction, but it still does not guarantee halting deindustrialisation, does not provide concrete solutions for securing affordable energy and, above all, does not rebuild industrial competitiveness in the long term". As he pointed out, positive elements include the proposal to establish an Industrial Decarbonisation Bank with a budget of EUR 100 billion for decarbonisation projects and the reduction of the linear reduction factor after 2030. He also added that slowing down the phase-out of free allowances for sectors covered by CBAM and extending this process until 2038 is a positive move. At the same time, he stressed that the key issue remains the principle of not withdrawing free allowances, and that the mechanisms proposed by the Commission alone will not stop the outflow of investments and production sites without effective tools to reduce energy costs, protect the European market and enable companies to maintain production and invest in transformation.
Key proposals for the chemical industry
One of the main elements of the proposal is a change in the trajectory for reducing the pool of allowances after 2030. The linear reduction factor is to amount to 3.7% in 2031–2035 and 1.7% in 2036–2040. From the perspective of the chemical sector, maintaining free allocation of allowances and indirect emission cost compensation after 2030 is of particular importance. However, the European Commission proposes linking the free allocation to a decarbonisation investment plan. According to PIPC, this solution may encourage companies to implement projects, but at the same time it changes the nature of the carbon leakage protection mechanism by making full use of this instrument conditional on meeting additional requirements.
The Commission also announces a slowdown in the phase-out of free allowances for sectors covered by CBAM and an extension of this process until 2038. PIPC stresses that this is a necessary correction, long advocated by the chemical sector, but in its current form it does not eliminate the risks related to industrial competitiveness. Under the Commission's proposal, part of the phased-out allocation is to be restored and its complete expiry postponed until 2038. The actual effectiveness of CBAM, its resilience to circumvention and its ability to level the cost burden between EU producers are to be verified in the coming years of the mechanism's operation.
The announced solutions also include the establishment of an Industrial Decarbonisation Bank with a target value of EUR 100 billion. The first stage of this instrument is to be the ETS Investment Booster worth EUR 30 billion, financed from 400 million allowances. The Polish Chamber of Chemical Industry points out that this mechanism may be a needed source of support, but its current design could favour only the projects prepared the fastest. According to experts, project selection should also take into account the scale of emission reduction, the importance of a project for European value chains and the infrastructure barriers present in a given region. The Commission's proposal also provides for an obligation for member states to allocate 50% of national ETS auction revenues to investments serving the decarbonisation of sectors covered by the system.
An important part of the changes is also a modification of the provisions defining the maximum annual rate of updating benchmarks for heat and fuels, which is of particular importance for energy-intensive sectors, including the chemical industry. According to the assumptions, this solution is to limit the pace of reduction of free allocations determined on the basis of these benchmarks and enable fuller use of the available pool of allowances. It is also intended to allow full use of the pool of around 80 million allowances that may be allocated free of charge in 2026–2030. The Chamber points out that benchmarks should reflect the actual availability of technologies, fuels and infrastructure in the period to which they apply.
PIPC experts' assessment
Experts from the Polish Chamber of Chemical Industry assess that many of the solutions presented by the European Commission address demands raised by the Chamber for a longer period, including in the Manifesto of Polish Chemistry. At the same time, they point out that the proposed changes are not without limitations and that their actual impact on the industry's situation will depend on implementation conditions and later legislative clarification.
Klaudia Kleps, director of advocacy and legislation at the Polish Chamber of Chemical Industry, stressed that "the European Commission's proposal contains necessary corrections, but it does not constitute a breakthrough reconstruction of the EU ETS. It changes the pace of reducing the pool of allowances, expands financial instruments and extends some protective mechanisms, but it does not remove the fundamental problem, today European industry still bears emission costs that its global competitors do not bear on a comparable scale". She added that conditionality fundamentally changes the nature of free allocation, because linking it to a decarbonisation investment plan may indeed stimulate projects, but at the same time transforms an instrument protecting against carbon leakage into an investment obligation. She also pointed out that the most important conditions have not yet been defined in the directive itself, including the meaning of the term "significant emission reduction" and the methodology for assessing investment effects. A substantial part of these elements is to be specified only later in the Commission's delegated acts.
One of the most important limitations of the proposed changes, highlighted by PIPC, remains the absence of solutions that would ensure industry access to competitively priced energy. The European Commission itself points to the unfavourable price relationship between electricity and fuels, insufficient grid development and the immaturity of some technologies. In the experts' view, without reducing these barriers it will be difficult to achieve the expected scale of decarbonisation investments.
The Polish Chamber of Chemical Industry emphasises that the Commission's proposals should not be treated as a simple easing of the EU ETS system. The ambition for emission reduction remains high, and the significance of the announced changes will depend on detailed provisions, rules for access to financing and the final shape of the regulations developed during further negotiations. PIPC announces that it will analyse the subsequent stages of the legislative work in terms of their impact on competitiveness, investment capacity and the pace of transformation of the Polish chemical industry.
