VIK German Association of industrial energy consumers welcomes the efforts of the EU Commission on European law amendment and would like to use the opportunity to provide feedback on the regulation establishing the framework for achieving climate neutrality.

In our view, a successful industrial transformation towards climate neutrality requires the following enabling framework conditions: time-bound roadmap and achievable targets, improved energy security conditions including internationally competitive energy prices and a stable economic environment as well as an unbureaucratic government financial support for companies to invest in long-term low-carbon projects, complemented with effective measures on carbon leakage protection and unfair international competition, as well as lead markets for low-carbon products made in the EU. We would like to emphasize that if the conditions mentioned above are not met, the pace of the industrial transition will slow down and important product chains will be lost for Europe.

From our perspective, the proposed target of a 90% net reduction in GHG-emissions by 2040 compared to 1990 levels is highly ambitious and requires an implementation plan that assesses whether the legislation put in place will contribute to achieving the targets and takes into account the needs of energy-intensive industries in the context of current economic and geopolitical developments.

Ensuring that climate targets are achieved must be balanced regarding the expense of stagnating economic development and must have a global focus. Investments in climate mitigation must take place where they are most effective and should not lead to the relocation of energy-intensive companies to third countries outside the EU.

We believe it is crucial to maintain existing energy-intensive industries in Europe, including their value chains, to avoid risks related to geopolitical instability or future dependencies on critical raw materials and energy imports. For this, a technology-open approach to net-zero pathways will be of vital importance. This approach will encourage a wider range of solutions, enabling climate targets to be met in a cost-effective and efficient way. Energy diversity, including all sources of low-carbon energy and infrastructure should be a priority on the way to climate neutrality.

1. Link between reduction pace and technological feasibility

Starting in 2030, the EU Commission proposes a reduction path that initially declines significantly, reaching its peak reduction rate towards 2040 before gradually slowing down towards the final target in 2050. From our perspective, it is important to consider the precautionary principle by defining carbon dioxide reduction pathway between 2030 and 2050. This path can be accelerated when the aforementioned conditions are met. This trajectory deviates from a standard innovation curve, which typically starts with slower progress and accelerates as commercialization, technology availability and new energy sources increase. Innovations and the availability of low-carbon energy sources are crucial for the industry transition. However, technological breakthroughs, particularly in nascent technologies such as Direct Air Carbon Capture and Storage remain highly uncertain. A further important aspect to highlight is the use of accumulated ETS revenues. Currently, around €500 billion has been collected and returned to member states but not necessarily directed towards industrial transformation projects. This disparity needs to be addressed, as the European Innovation Fund alone lacks sufficient resources. Therefore, a transparent reporting obligation should be introduced, requiring member states to disclose how they utilize ETS revenues to support industrial transformation efforts.

2. Permission to use carbon credits under Article 6 of Paris Agreement

Contributions to minimising carbon dioxide outside Europe should be recognised within the EU ETS. The initiative to allow the use of international credits towards the EU climate target is viewed predominantly positively – this also aligned with a key demand made by VIK during the recently concluded ETS consultation. However, the new proposal has a tight timeframe and limited scope: eligibility is only set to begin in 2036 and will be limited to just 3 percent of the EU’s net emissions from the year 1990. In our view, the use of international credits should be possible starting earlier than 2036. It is essential that the framework for investments in industrial transformation and capital generation within the EU remains robust and is not undermined by the introduction of international certificates. Such certificates should be implemented in alignment with commonly accepted standards for emissions trading. In addition, complementary measures must be pursued, most notably the deployment of CCUS technologies—to ensure a balanced approach.

Opening up to international certificates enables a reduction in EU abatement costs and provides flexibility: very costly measures need to be implemented comprehensively once existing cost-effective potentials have been exhausted globally. The transition costs also fall in the long term, as the most expensive measures, such as the conversion of the raw material base, are linked to energy costs and can benefit from lower energy costs after the global conversion of energy systems if they are postponed. The aim of Article 6 of the Paris Agreement is to make mitigation measures globally tradable under strict conditions. Given the limited availability of financial resources, this will accelerate industrial transformation.

3. Competitiveness aspects and carbon leakage protection

We believe that tackling climate change is a global challenge, therefore it is important to consider the climate ambitions of other countries while setting climate targets in Europe. VIK welcomes the efforts of European climate diplomacy on the global level, yet we should be realistic about its impact in terms of protecting our industrial competitiveness. European industry faces high energy and carbon prices that are not comparable to the relevant prices in third countries. As low-carbon technologies are still under development and do not have a broad deployment in Europe, they will require much more time and progress in global climate ambitions. We are convinced that an increase in the level of ambition within ETS should be combined with more effective carbon leakage protection and requires an evaluation, considering the needs of the manufacturing industry.

It is important for energy-intensive companies to have access to internationally competitive prices for low-carbon energy; carbon leakage protection instruments should be improved and prolonged to ensure the competitiveness of European companies in the global market, including prolonging and broadening the scope of indirect cost compensation. Declining to the ERT-Study “Competitiveness and Industry Benchmarking Report”[1] the European industry has been continuously losing ground on global markets, especially the report indicates that market shares have been declining, European companies are becoming less relevant in comparison to global peers, also Europe’s future technological leadership is at risk. In comparison, at the global level industrial competitiveness is shifting. For example, China has replaced the EU and the US as the world’s leading base for industrial production, tripling its GVA share since 2000. The EU took the biggest proportional hit in market share (losing a third since 2000). As the industrial sector accounts for almost one fifth of employment in the EU, potential deindustrialization will have a significant impact on employment and social cohesion.

Moreover, a hint to the global picture[2] should be taken into account as well, also regarding levels of GHG-emissions and the shrinking role of EU and its likely global impact. For example, the following table shows that the size of the emissions in the EU is rather small in comparison to global emissions.

Emissions by country: EU and total global emissions

In our opinion, the EU needs to find a path towards safeguarding its own industry first to be able to afford its transition in an evolutionary way and to establish a reliable business case.

The climate target aims to reduce final energy demand by more than 35%, with a strong emphasis on electrification. This assumes sufficient availability of low-cost, low-carbon electricity, which could mean a 70% increase in electricity consumption compared to today, or even a 600% increase in the use of intermittent renewable energy sources. In the long run, renewable electricity will be a foundation for the decarbonisation of the most industrial processes in Europe. However, VIK underlines that faster expansion of renewables will lead to higher costs for electricity in the short and middle term and the relevant infrastructure, moreover, there is no evidence that low-carbon production processes will become globally competitive by 2040. In this sense, it is also questionable if the European power system will be fully decarbonised by 2040 as it is proposed by the EU. As other energy sources develop in parallel (hydrogen, ammonia, synthetic fuels), a clear strategy is needed to optimise investment in infrastructure, strike the right balance between production and imports, and avoid stranded assets.

4. Future risks connected with CBAM-implementation

For some players CBAM lacks the ability to deliver the same level of protection as free allocation under the ETS. High bureaucracy costs, lack of export competitiveness protection or insufficient downstream protection, inadequate default values and high risks of circumvention, are just some of the issues that need to be solved. Scope extension to other sectors should only happen once the CBAM proved to be effective and specific needs of those sectors can be addressed.

Provisions must also be established in the CBAM regulation to guarantee that EU producers remain competitive in the EU and non-EU markets, thereby maintaining the profitability of European production sites.

Compared to other developed economies where renewable energy is cheaper, the production prices of green products made in Europe, including net-zero technologies, will be higher. In this sense, we would like to point out the possible "cash-out effects" if CBAM revenues are not paid by importers at the European border. The higher end product prices paid by EU customers will mainly support non-EU producers. Also, when no transition has taken place, but the producing country introduces CO2-pricing, the EU has no control mechanisms to check how these revenues are used in third countries, whether it is for climate protection and decarbonisation or other purposes like support of their local industry.

Concerning the CBAM design, there are other aspects that should be reviewed in favour of the industry in the context of further ETS reform. Currently, there are two issues: 1. Fair calculation of the CO2-price at the border: the Cross-Sectoral Correction Factor needs to be included in the formula. 2. Production facilities are obliged to purchase certificates in advance: within the Clean Industrial Deal package the share of certificates was reduced from 80% to 50%, and instead of default values, one can, if necessary, refer to lower validated values from the previous year provided by the supplier, and all mandatory certificates can be returned. Since the submission deadline has been extended until autumn and the suppliers are apparently not going to provide validated data any earlier, the “retention period” has thus been extended from a maximum of 13 to around 16–18 months. The advance payments are justified by the default risk of the importers, which is not very convincing, at least in the case of AEO-certified importers. If the changes are implemented, it will be better than before, but still not as good as if there were no advance payments at all.

5. Solutions for further development of the ETS after 2030

In our view, it is important to find a future solution for the ETS period after 2030, when the ETS cap will come closer to being exhausted, free allocation will approach its end, and European manufacturers will need protection against carbon. The introduced CBAM, without an export solution, does not provide sufficient protection and must be revised promptly. There is no evidence that industry would be able to decarbonise at a higher speed than other sectors, nor is the impact of this ambition on competitiveness handled in communication.

In our opinion, policymakers should analyse all relevant options for the ETS after 2030, from amending the Market Stability Reserve (e.g. enabling re-marketing of invalidated allowances), to a possible link between the EU ETS and carbon pricing mechanisms in third countries. Contributions to minimising carbon dioxide outside Europe should be recognised within the EU.

8. CCUS and carbon removals: necessary infrastructure and recognition within the EU ETS

CCUS technologies as well as CCUS infrastructure are important for transformation of energy-intensive industries, on the path to climate neutrality especially for sectors like concrete, steel or chemicals. To be successful, CCUS technologies should be recognised within the EU ETS. In the long run, VIK acknowledges CDR-technologies as a necessary tool to abate residual emissions from industries.

At this moment, the ETS does not set the right incentives to tap the circular potential of CCU for products. The climate contribution of CCU compared to conventional fossil feedstocks should be recognized for both short- and long-lived products. The relative benefit of using CCU is based on the avoidance of fossil raw material extraction, independent of the end-of life fate of the product.

In view of the indispensability of CCU for a climate-neutral world, Europe should remove regulatory barriers, like the input-based pricing of CO2 in the ETS by changing Article 12 (3b). Application of this Article according to the Draft Delegated Act will lead to double counting at least when waste incineration is included in the ETS. Generally, the proposed product scope within the Delegated Regulation as regards the requirements for considering that greenhouse gases have become permanently chemically bound, we define as too narrow.

[1] Competitiveness and Industry Benchmarking Report, Link

[2] GHG emissions of all world countries 2023 report, Link