Europe (Brussels Morning Newspaper) – The EU Commission has extended state-aid rules allowing governments to compensate manufacturers for electricity costs linked to the EU’s carbon market.
Power producers usually include the cost of carbon allowances in wholesale energy prices under the EU ETS. For many years, Brussels has permitted member states to partially offset that cost for industries that are thought to be susceptible to carbon leakage, which occurs when manufacturing shifts overseas or is replaced by imports with higher carbon emissions. That safety net is expanded by the revised guidelines.
The updated regulations expand the eligibility list to include 20 industrial sectors and two subsectors, including production connected to batteries, organic chemicals, and components of ceramics and glass manufacturing. Simultaneously, the Commission raised the ceiling from 75% to 80% of indirect ETS expenses for previously eligible industries.
they can show that they are exposed to leakage risks in accordance with the Commission’s standards, member states may now request permission to include sectors that are not specifically specified. The Commission has strengthened requirements linking aid to investments that promote the green transition and lessen long-term exposure to carbon-driven electricity costs for larger beneficiaries.
The adjustments come at a time when indirect cost compensation has become a significant budgetary issue. According to Commission data, 15 member states paid nearly €5.52 billion ($6.5 billion) in 2024 to reimburse costs incurred in 2023, an increase of roughly 40% over the previous year.
Industry associations have applauded the wider scope, claiming that more of Europe’s manufacturing base is being squeezed by growing power costs and international competition. Environmental groups argue that increasing compensation runs the danger of taking money from the carbon market away from projects aimed at reducing emissions.
The update is part of a broader reevaluation of EU climate policy. Brussels is attempting to strike a compromise between decarbonization and industrial competitiveness through the free distribution of ETS credits and the Carbon Border Adjustment Mechanism, which will begin its full phase in 2026.
Analysts point out that comparable discussions are taking place all across the world, from China’s support for strategic manufacturing to U.S. clean-energy subsidies under the Inflation Reduction Act, highlighting the growing interdependence of industrial and climate policy.
How will the new rules change maximum compensation levels?
The new ETS State Aid Guidelines, amended on December 23, 2025, increase maximum compensation situations for circular carbon costs by raising the aid intensity cap from 75 to 80 for preliminarily eligible sectors, allowing governments to cover a larger share of electricity price hikes tied to EU ETS allowances.
Twenty new sectors, including organic chemicals, pottery, flat glass, and battery product, plus two subsectors, now qualify for over to 80 compensation, broadening relief to further energy- ferocious diligence at threat of carbon leakage.
Member countries can propose further sectors for addition, subject to Commission blessing; large donors face conditions to invest savings in green technologies, with accretion rules limiting total aid mounding.
