EU proposes Temporary Decarbonisation Fund using 25 percent of CBAM revenues
The European Commission has published a legislative proposal for a two-year Temporary Decarbonisation Fund, designed to provide targeted financial support to energy-intensive industries exposed to an increased risk of carbon leakage as the Carbon Border Adjustment Mechanism takes effect. The Fund would allocate 25 percent of CBAM revenues for the years 2028-2029, covering production from 2026 and 2027, and is intended as a transitional measure rather than a permanent subsidy.
Why the fund is needed
The CBAM aims to prevent carbon leakage by ensuring that imports face the same carbon costs as EU production. However, EU producers exporting to international markets where the CBAM does not apply continue to face competitive disadvantages from carbon costs not borne by their global rivals. The Fund primarily targets export-related carbon leakage risks for EU industries with a high share of production going to international markets. Energy-intensive sectors such as steel, aluminium, cement and chemicals are particularly exposed, and the loss of any major producer can have ripple effects across regional economies and the broader value chain.
How the fund will work
Support under the Fund will be proportional and conditional on operators’ decarbonisation investments. This conditionality is designed to ensure that the financial assistance accelerates the transition to lower-carbon production methods rather than simply offsetting carbon costs. Eligible projects are expected to include investments in cleaner production technologies, electrification, hydrogen-based processes and energy efficiency measures. Detailed eligibility criteria will be set out in delegated acts following adoption of the basic regulation.
The wider context: EU ETS review
The Fund is presented as a transitional bridge ahead of a comprehensive review of how to address remaining carbon leakage risks from 2028 onward, as part of the scheduled EU Emissions Trading System review. As the gradual phase-out of free allowances for CBAM-covered sectors proceeds from 2026 to 2034, the relative weight of CBAM in the overall climate policy framework will grow. Industry groups have welcomed the temporary support but warned that more substantial structural measures may be needed to maintain European industrial competitiveness during the transition.
