How the EU carbon market can accelerate decarbonisation by making polluters pay

The report argues that the EU ETS continues to reward heavy polluters through free allowances, which in 2023 alone amounted to approximately 40 billion euros. It highlights that sectors like steel, cement, and chemicals often receive more allowances than they emit, reducing the incentive for decarbonisation. The authors critique the Innovation Fund for over-financing carbon capture technologies (CCS/CCU) rather than scalable zero-emission technologies. To accelerate the transition, the report recommends phasing out free allowances by 2030, fully implementing the Carbon Border Adjustment Mechanism (CBAM), and reforming the Innovation Fund to prioritise material savings and renewable energy solutions.

• The EU ETS free allocation system fails to enforce the 'polluter pays' principle, with approximately 40 billion euros lost to free allowances in 2023, which the report argues should have been invested in decarbonisation.
• Major industrial sectors, including steel, cement, and chemicals, received free allowances in 2023 that exceeded their actual carbon dioxide emissions.
• A small number of companies dominate emissions and receive the bulk of free allowances; in 2023, ArcelorMittal received over €3.8 billion and Heidelberg received almost €2 billion in free allowances.
• The oil refining sector received over 73 million free allowances in 2023, valued at approximately €6 billion, despite being one of the EU's most polluting activities.
• The Innovation Fund has disproportionately financed carbon capture and storage (CCS) and carbon capture and utilisation (CCU) projects; between 2020 and 2022, more than €2.5 billion of the €6.4 billion total budget went to these technologies.
• The cement and lime sector is the primary beneficiary of the Innovation Fund, receiving at least €2.5 billion in grants from 2020 to 2023.
• Delaying the implementation of the Carbon Border Adjustment Mechanism (CBAM) by two years would result in a loss of approximately €20 billion in revenue for the Innovation Fund between 2026 and 2030.
• Manufacturing industry decarbonisation has been slow compared to the energy sector; since 2013, manufacturing carbon pollution decreased by less than 15%, while the energy sector almost halved its emissions.

APA

Tamellini, L., & Maury, C. (2025). How the EU carbon market can accelerate decarbonisation by making polluters pay. Carbon Market Watch. https://carbonmarketwatch.org/wp-content/uploads/2025/03/CMW_WWF_A-clean-industrial-revolution.pdf

Chicago

Tamellini, Lidia, and Camille Maury. How the EU carbon market can accelerate decarbonisation by making polluters pay. Carbon Market Watch, 2025. https://carbonmarketwatch.org/wp-content/uploads/2025/03/CMW_WWF_A-clean-industrial-revolution.pdf.

Wikipedia

{{cite report |last1=Tamellini |first1=Lidia |last2=Maury |first2=Camille |title=How the EU carbon market can accelerate decarbonisation by making polluters pay |publisher=Carbon Market Watch |date=February 2025 |url=https://carbonmarketwatch.org/wp-content/uploads/2025/03/CMW_WWF_A-clean-industrial-revolution.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{tamellini2025how, author = {Tamellini, Lidia and Maury, Camille}, title = {{How the EU carbon market can accelerate decarbonisation by making polluters pay}}, institution = {Carbon Market Watch}, year = {2025}, month = feb, url = {https://carbonmarketwatch.org/wp-content/uploads/2025/03/CMW_WWF_A-clean-industrial-revolution.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }