According to a recent paper by Carbon Market Watch and WWF,  in 2023 alone, heavy industry received free allowances worth around €40 billion. Furthermore, sectors such as cement, steel and chemicals were over-subsidised, being rewarded with more pollution permits than their actual emissions.

“The current architecture of the EU ETS continues to reward heavy polluters by granting them free allowances instead of incentivising emissions reductions,” says the document pointing the fingers at the worst two performers, steel and cement giants, which together received a total of over €5,8 billion in free allowances. “Free allowance should only go to companies that demonstrate improvements in energy efficiency and adopt decarbonisation plans,” according to the document.

The paper also revealed that between 2021-2030, the heavy industry is set to be awarded around €226,7 billion in free allowances. Meanwhile, over the same period, the budget of the Innovation Fund, an essential tool that truly supports the decarbonisation of the EU industry, is estimated at just €40 billion, depending on the carbon price and the implementation of the CBAM which will gradually replace the free allocation mechanism.

“The Innovation Fund’s budget needs to rise even further, by eliminating the remaining free allowances and pumping much of the resulting revenue into the Innovation Fund and other decarbonisation efforts,” says the document. 

According to a leaked draft document, the European Commission plans to postpone CBAM to February 2027, insead of January 2026. However, the report published by Carbon Market Watch and WWF, warns that any delays in the implementation of the CBAM will lower the Innovation Fund’s budget. 

“In terms of numbers, in 2030 alone, the Innovation Fund should, under the current scenario, reach about 184 million allowances. However, if the implementation of the CBAM is delayed by two years (from 2026 to 2028), this number will more than halve, dropping to around 90 million allowances,” warned the document. The authors are referring to calls to postpone the CBAM for two years made earlier in the year by the European People’s Party (EPP), the largest party in the European Parliament and in the European Commission.