European Aluminium welcomes EU ETS changes, proposes 1.7% LRF and 2040 ICC extension

European Aluminium has welcomed the European Commission’s proposal to review the EU Emissions Trading System (ETS) Directive and a separate proposal to adjust the ETS free-allocation fallback benchmarks for 2026–2030.

The revised ETS review aims to strengthen industrial decarbonisation while supporting Europe’s climate goals. Investment will be a key focus, with the EUR 100 billion (USD 114 billion) Industrial Decarbonisation Bank, ETS Investment Booster and Innovation Fund supporting clean technology. Member States will also direct 50 per cent of national ETS revenues toward decarbonisation investments.

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The industry group said the proposed rules are a step in the right direction for competitive and cost-effective decarbonisation in Europe. However, it called for further changes to help aluminium producers cut emissions while remaining competitive in international markets.

European Aluminium said aluminium producers face strong international competition and can only pass on limited higher costs to customers. It also noted that some decarbonisation technologies are not yet widely available at commercial scale.

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Calls to maintain carbon leakage protection

European Aluminium called for carbon leakage protection to be maintained. It said ETS indirect cost compensation (ICC) should be preserved and extended through 2040 to provide longer-term visibility. The group also said no new conditionality requirements should be introduced and that indirect emissions should remain outside the Carbon Border Adjustment Mechanism (CBAM).

The group also called for greater flexibility in the ETS market to support adequate market liquidity. It proposed a Linear Reduction Factor (LRF) of 1.7 per cent from 2031 to 2035, with the higher 3.7 per cent rate applying only after that period. It also called for international credits to provide greater flexibility for ETS sectors.

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Funding and benchmarks

European Aluminium thinks an Industrial Decarbonisation Bank and ETS revenues should be tailored to the aluminium value chain. It called for the 50 per cent earmarking of ETS revenues to be fully dedicated to energy-intensive industries.

The group also said funding from the Industrial Decarbonisation Bank and Investment Booster should be additional to, rather than replace or become a condition for, free allocation or indirect cost compensation. It called for the Industrial Decarbonisation Bank to support both capital expenditure (CAPEX) and operating expenditure (OPEX).

European Aluminium also called for a new benchmarks methodology with sector-specific approaches for alumina refining, aluminium recycling and semi-fabrication.