EU broadens industrial support rules to accelerate decarbonisation and address energy costs

The European Commission has broadened the rules allowing national governments to compensate manufacturers for electricity price rises caused by the EU Emissions Trading System, a move that extends short‑term relief while tying support more explicitly to decarbonisation objectives.

According to the report by Brussels Morning, the Commission on December 23, 2025 amended ETS state aid guidelines to widen the list of sectors eligible for indirect cost compensation and to lift the cap on aid intensity for previously eligible industries from 75% to 80% of indirect ETS costs. The revision adds 20 industrial sectors and two subsectors , among them battery production, organic chemicals, and components of ceramics and glass manufacturing , and permits member states to request Commission approval to cover further sectors if they can demonstrate carbon‑leakage exposure under Commission criteria.

The change formalises what has already become a material budgetary commitment for capitals. Commission figures show that 15 member states paid nearly €5.52 billion in 2024 to reimburse costs incurred in 2023, roughly a 40% increase on the previous year, underscoring the growing fiscal footprint of indirect ETS compensation. The amended guidelines also strengthen conditions for larger beneficiaries, requiring that a portion of any savings be invested in measures that reduce long‑term exposure to carbon‑driven electricity costs and support the green transition, and introduce aggregation rules to limit total aid amounts.

The revisions sit within a broader EU policy architecture intended to reconcile industrial competitiveness with climate ambition. According to the European Commission’s own carbon‑leakage guidance, sectors are assessed on trade exposure and emissions intensity; highly exposed activities are placed on a carbon‑leakage list and receive free ETS allowances at 100% of the benchmark, while less exposed sectors receive reduced allocations that will be phased out by 2030. The state‑aid updates run alongside other instruments designed to protect industry, including free allocation, the planned full phase‑in of the Carbon Border Adjustment Mechanism (CBAM) in 2026, and the Clean Industrial Deal launched in February 2025 to scale renewables, electrification and industrial decarbonisation investments.

European institutions have signalled parallel reforms. The European Parliament and Council reached agreement earlier in 2025 to simplify and strengthen CBAM, with the Parliament indicating the Commission will assess in early 2026 whether to extend CBAM’s scope to further ETS sectors and how to assist exporters at risk of carbon leakage. The Commission and Parliament have also authorised state aid measures intended to promote clean industrial investment through to 2031, allowing temporary reductions in electricity prices for energy‑intensive users where linked to CO2 reduction investments, according to the Commission’s public communications.

Member states are already moving. Germany has announced a national scheme, pending Commission approval, to subsidise electricity prices for heavy industry from January 1, 2026 through 2028, reducing rates for qualifying firms to around 5 euro cents per kilowatt hour from roughly 15 cents, a measure presented by the federal government as part of an effort to revive industrial activity. Industry groups have welcomed the EU guidance and national initiatives as necessary to shield factories exposed to global competition and high power costs. Environmental organisations have warned that higher levels of compensation risk blunting the price signal the ETS is intended to deliver and diverting public funds away from direct emissions‑reduction projects.

Analysts note the EU’s approach reflects an increasingly global pattern: states from China to the United States are combining industrial support with green incentives , for example through strategic manufacturing subsidies and the US Inflation Reduction Act , creating a complex interplay between trade policy, industrial policy and climate goals. The Commission’s amended guidance aims to balance these pressures by making aid conditional on investments that reduce long‑run carbon exposure, while leaving room for member states to target support to sectors judged vulnerable to relocation or import displacement.

The practical effects will hinge on national decisions and Commission scrutiny. Member states must notify schemes for approval, justify sectoral inclusions with leakage exposure evidence, and demonstrate how aid will be channelled to accelerate decarbonisation for major beneficiaries. The amendment provides short‑term relief for a broader set of manufacturers, but it also embeds clearer expectations that public support should be deployed to accelerate the transition away from fossil‑fuel‑intensive production rather than merely offset current costs.