VIK German Association of Industrial Energy Consumers welcomes the efforts of the European Commission to review the technical criteria of the State Aid Guidelines for indirect cost compensation and would like to take this opportunity to provide feedback on key points that are important for VIK member companies.

European companies are experiencing mounting competitive pressures from non-EU countries, declining margins, and persistent underutilization of production capacity, which have contributed to plant closures and workforce reductions. For energy-intensive industries, additional cost pressures stem from both direct and indirect carbon dioxide emission charges, which also influence electricity prices and increase the risk of carbon leakage. Since international competitors are not subject to these costs, European industries are exposed to unfair competition from imports that do not reflect the embedded indirect carbon dioxide emission expenses.

In our view, there are several urgent measures that should be implemented within the future design of the ETS State Aid Guidelines to prevent further deindustrialization:

1. All exposed sectors and sub-sectors should be eligible: All industrial sectors at genuine risk of carbon leakage due to high exposure to international trade and significant indirect ETS costs should qualify for compensation. A reassessment based on electricity consumption, GVA data and carbon dioxide prices is essential to ensure fair treatment and prevent further industrial decline at sector level and at sub-sector level if necessary as some sectors are highly heterogeneous.
2. Avoiding discrimination against companies in industrial parks: To ensure that the political aim of relieving industrial companies from ETS related costs is achieved, eligibility criteria should also consider indirect electricity consumption in industrial parks. A significant share of energy-intensive industry is located in such industrial parks where the site is operated by a separate legal entity which supplies secondary energies (e.g. steam, heat, compressed air) generated from electricity to industrial companies on-site. As these operators are usually not part of an eligible NACE-sector while the industrial companies are, the indirect ETS costs embedded in the secondary energies are not compensated. This excludes the industrial companies from ETS cost compensation, leading to competitive disadvantages compared to fully integrated single-site companies generating their own secondary energies. Compensation rules should therefore allow for attribution of the underlying electricity consumption to the eligible companies consuming secondary energy, ensuring equal and non-discriminatory treatment.
3. Safeguarding European strategic independence: Compensation for additional carbon costs is essential to maintaining Europe's strategic independence. Without sufficient support, energy-intensive companies face financial distress, declining competitiveness and potential shutdowns, which increase external dependence and undermine economic stability and hinder progress in reducing carbon dioxide emissions.
4. Sufficient budgets and uniform implementation: As Draghi’s Report clearly mentioned, a higher share of ETS auctions revenues should flow back to support competitiveness of energy-intensive industries. In this regard, following measures should be implemented:
   > Prolong existing ETS indirect cost compensation schemes.
   > Increase the available budgets for ETS compensation to better protect the currently affected industries and extend protection to other sectors at risk of carbon leakage.
   > Ensure both adequate financial support and consistent application to maintain fair competition within the EU.
5. Removal of aid intensity and efficiency factors: To support industrial electrification as a competitive decarbonization pathway, aid intensity and efficiency factors should be set at 100%.
6. Realistic benchmarks and emission factors: Industry benchmarks must reflect actual processes and not be based on niche or experimental processes, with adjustments based on verified data rather than theoretical assumptions. Emission factors should accurately represent the real marginal electricity generation emissions in each country.
7. No conditionalities: Indirect cost compensation offsets the loss of international competitiveness caused by high carbon dioxide costs in electricity. It should not be tied to additional requirements, such as mandatory investments in decarbonization or energy efficiency. Moreover, due to rising energy costs and global competition, companies are already continuously optimizing efficiency and technological processes.

The review of the ETS State Aid Guidelines must ensure an effective framework that prevents carbon leakage while sustaining industrial competitiveness in Europe. Since its introduction in 2012, indirect cost compensation has, when backed by sufficient budgets, proven to be an effective carbon leakage instrument. Keeping the compensation scheme in place until and beyond 2030 is therefore of utmost importance for energy-intensive sectors. Revised guidelines under the mentioned conditions will reduce relocation risks, help to establish green production in Europe and strengthen the capability to develop future climate solutions. A harmonized, pan-European approach to state aid is essential to safeguard fair competition and accelerate industrial decarbonization.