Decarbonising manufacturing firms in the European Union’s emissions trading system.
Date: 2025-04-03
Institutions: European University Institute
Subjects: EU Emissions Trading Scheme, EU energy policy, EU industrial policy, adaptation to climate change, carbon neutrality, energy grid, innovation, multi-level governance

Decarbonising manufacturing 
firms in the European Union’s 
Emissions Trading System

Highlights 

•  EU  manufacturing  firms  face  the  dual  challenge  of  decarboni-
sation  and  (international)  competitive  pressure.  This  policy  brief 
analyses emissions and output trends in the EU ETS, sector-spe-
cific industrial innovation, the impact of uncertainty on low-carbon 
investments, and the need to support lagging firms.

•  The  European  industry  is  not  on  track  to  meet  its  emissions  re-
duction targets. The carbon efficiency and investment levels are 
heterogeneous,  reflecting  the  different  decarbonisation  options 
across sectors. This calls for a sector-specific or value-chain ap-
proach to incentivise decarbonisation.

• 

In the short term, (carbon) contracts for difference can offer relief 
and  effective  de-risking.  However,  clarity  is  still  required  on  the 
EU’s carbon pricing framework beyond 2030.

•  A  competitive,  decarbonised  EU  industry  will  lead  to  a  new  in-
dustrial landscape, requiring strategic EU coordination to ensure 
policy acceptance and mitigate regional impacts.

Authors

Marie Raude, EUI; Lea Heinrich, EUI; Simone Borghesi, EUI.

Issue 2025/04
January 2025

POLICY BRIEFIntroduction1

Decarbonising  European  manufacturing  firms  is 
critical to ensuring the EU reaches its climate neu-
trality objective. In 2022, emissions from the manu-
facturing sector – which include iron & steel, mineral 
oil, cement & lime, chemicals, pulp & paper, glass, 
and non-ferrous metals- accounted for 21% of total 
EU emissions. Activities in the manufacturing sec-
tor contributed to the highest levels of greenhouse 
gas (GHG) emissions in Europe, alongside the sup-
ply  of  electricity,  gas,  steam,  and  air  conditioning, 
with both reporting 745 million tonnes of CO2-eq.2 

Industrial emissions have decreased, but progress 
remains insufficient, and there is a need to increase 
the reduction rate to be consistent with the trajecto-
ries towards the overall 2030 and 2050 objectives. 
In  their  2024  Assessment  Report,  the  European 
Scientific Advisory Board on Climate Change high-

lighted “average annual reduction in 2005–2022 (– 
17 Mt CO2e per year) needs to accelerate to – 24 
Mt CO2e per year in 2023–2030 and – 19 Mt CO2e 
per year in 2031–2050 to be consistent with the tra-
jectories towards the overall 2030 and 2050 reduc-
tion objectives” (Figure 1).3 

Decarbonisation,  however,  must  not  come  at  the 
cost  of  economic  competitiveness.  The  manufac-
turing sector is a key contributor to Europe’s econ-
omy  in  terms  of  employment  and  output.  Policies 
that may negatively affect activity must be carefully 
designed, always considering their social impacts. 
One  challenge  with  decarbonisation  is  that  the 
higher  relative  costs  of  decarbonised  production 
can lead to output reduction and a higher reliance 
on  imports.  The  Draghi  report  on  European  com-
petitiveness warns: “Deindustrialisation in the EU in 
some of these sectors has already started and may 
accelerate without dedicated policies.”4

Figure 1: Overall progress in reducing industrial GHG emissions 

(source: European Scientific Advisory Board on Climate Change)

1  The authors thank Aliénor Cameron and James Kneebone for their helpful discussions and comments.

2 

 Estimation from Eurostat data (env_ac_ainah_r2).

3 

 European Scientific Advisory Board on Climate Change. (2024). ‘Towards EU climate neutrality: progress, policy gaps and 
opportunities’, the European Scientific Advisory Board on Climate Change

4 

 Mario Draghi, The future of European competitiveness, September 2024. (p. 92).

2  

  Robert Schuman Centre | January 2025

In  2023,  the  European  Investment  Bank  (EIB) 
collected  information  on  investment  activities,  fi-
nancing  requirements,  and  difficulties  faced  by 
manufacturing firms in the EU ETS related to their 
decarbonisation  activities.5  The  survey  confirmed 
firms consider the EU ETS as a driver for innova-
tion, whilst carbon cost uncertainty is a hurdle. The 
survey also revealed that some firms were lagging 
behind their peers regarding their decarbonisation 
process. 

Based  on  the  key  findings  of  the  EIB  survey  and 
considering the economic importance of manufac-
turing firms in Europe, this policy brief is structured 
as follows. Section 1 provides an overview of emis-
sions and output trends for manufacturing firms in 
the EU ETS. Section 2 examines the academic evi-
dence and sectoral specificities of industrial innova-
tion.  Section  3  discusses  whether  uncertainty  is  a 
perceived or an actual barrier to low-carbon invest-
ments. Finally, section 4 presents a call to address 
industrial firms lagging in decarbonisation. 

1. Emission reductions of 
manufacturing firms in the EU  
ETS – decarbonisation or output 
reduction?

Emissions  from  the  manufacturing  sectors  are 
covered by the EU ETS, the pillar of Europe’s de-
carbonisation strategy: the coverage rate is above 
75% of the total emissions for these sectors. Over-

all, the EC reports a 7.5% drop in emissions from 
the  manufacturing  sectors  in  the  EU  ETS  in  2023 
compared to 2022. The EC reports this drop to be 
due  to  a  combination  of  reduced  output  and  effi-
ciency  gains  without  specifying  the  ratio  between 
these two levels.6 

In aggregate, European industrial production fell by 
1.2%  in  2023  compared  to  2022,  with  a  recorded 
decrease in production in about two-thirds of all in-
dustries. This can be explained by European firms’ 
higher relative energy costs compared to their glob-
al competitors.7 

Although  to  a  limited  extent,  emissions  costs 
havealso  pressured  European  competitiveness. 
The  increase  in  carbon  prices  in  the  last  5  years 
has  indeed  led  to  an  increased  production  cost. 
This impact is limited as carbon costs represented 
a small share of total production costs: 2% for Eu-
ropean steel producers in 2019 and around 10% for 
cement producers in 2021. Firms at risk of carbon 
leakage have received free permits to limit the neg-
ative  repercussions  of  carbon  cost  increases  and 
support  European  producers’  competitiveness.8 
With the recent Fit for 55 reforms to increase am-
bition,  including  the  tightening  of  the  cap  and  the 
gradual  move  away  from  free  permit  allocation, 
regulated firms are expected to feel more pressure 
from the EU ETS. In this context, future EU carbon 
prices  are  expected  to  reach  up  to  250  €/tCO2  by 
2030, and future carbon costs are thus expected to 
play a higher share of total production costs.9 

5 

 This information was collected by the EIB for the 2023 extension of the annual EIB Investment Survey (EIBIS). The questions 
were designed in collaboration with the EUI, as part of the LIFE COASE project.  A complete overview of the main results can 
be found in the EIB Investment Report: Transforming for competitiveness (Box A Manufacturing firms in the EU Emissions 
Trading System – what makes the leaders stand out from the rest? P.209 – P 214).

6  The EC specifies that at the time of publication of their report, production levels from installations in the scope of the EU ETS 
is not available. EC. (2024). Report from the Commission to the European Parliament and the Council on the functioning of 
the European carbon market in 2023. For the coverage rate of the EU ETS, refer to Raude, M., Mazzarano, M., & Borghesi, 
S. (2024). EU Emissions Trading System sectoral environmental and economic indicators. European University Institute.

7  Mario Draghi, The future of European competitiveness, September 2024. Production data comes from the production of indus-

try index on Eurostat (sts_inpr_a). 

8 

 Carbon leakage occurs when a firm relocates its production to a country with less stringent climate policies. The volume of free 
permits distributed to industrial sites depends on expected exposure to carbon leakage and on defined sectoral benchmarks. 
Note that in 2023, some sectors have received a net surplus of permits compared to their total reported emissions. It is the 
case for pulp & paper, cement & lime, and iron & steel (Sandbag data viewer). This is because the volume of free permits to 
be distributed is defined based on previous output and does not fully adjust to count for changes in production levels from one 
year to another. For information on carbon costs, refer to the estimations from Medarac et al (2020) for steel, and Cembureau 
(2021) for cement.

9  Cameron & Garrone (2024) already identify that after 2018, changes in emissions intensity led to opposite changes in cor-
porate performance, showing the importance of the increased regulatory stringency of the system. Cameron, A., & Garrone, 
M. (2024). Carbon intensity and corporate performance: A micro-level study of EU ETS industrial firms. For price projections, 
refer to Raude, M., Heinrich, L., Ferrari, A., Ekins, P., Osorio, S., & Borghesi, S. (2024). Climate neutrality: policy scenarios for 
emissions trading. European University Institute.

3  

  Decarbonising manufacturing firms in the European Union’s Emissions Trading System

Considering the evolution of emissions and output 
levels  together  is  key  to  analysing  the  extent  to 
which  these  industries  are  on  their  path  to  decar-
bonisation (Table 1). The aim is to see a decrease 
in  emissions  intensity,  indicating  a  decoupling  be-
tween the emissions and output levels. Since 2005, 
estimates suggest that the emissions intensities of 
steel, cement and chemicals in the EU have been 
relatively stable or even slightly increasing. Howev-
er,  an  accelerated  reduction  in  industrial  emission 
intensities has been noted since 2020, with consid-
erable  heterogeneity  in  the  rate  of  decline  across 
sectors.  In  2023,  pulp  &  paper  decreased  their 
GHG intensity the most, while chemicals increased 
theirs.10 

2. The EU ETS as a driver for indus-
trial innovation? Academic evidence 
and sectoral specificities.

The EU ETS is intended to incentivise firms to in-
vest  in  and  adopt  low-carbon  or  carbon-neutral 
technologies  to  reduce  their  emissions  intensity. 
Manufacturing  firms  in  the  EU  ETS  surveyed  by 
the EIB perceive carbon pricing or taxation as im-
portant drivers for investment in green technologies 
and  processes.11  However,  the  investment  gaps 
that remain to decarbonise heavy emitters and the 
lack of adoption show the current policy framework 
has not been effective enough to spur the needed 
changes for the uptake of clean production.12

The  academic  literature  found  limited  impact  of 
the  EU  ETS  on  low-carbon  technological  change 
during the system’s infancy from 2005 to 2013. Fur-
ther,  the  literature  also  indicates  that  the  EU  ETS 
had a more significant effect in spurring low-carbon 
innovation  than  adoption.  During  these  years,  the 

Table 1: Manufacturing sectors’ emissions and production for 2023

(Source: Sandbag, Eurostat, author’s calculations)
Note: A reduction in emissions is recorded across all manufacturing sectors. Iron & Steel is the heaviest emitting sector among the manufactur-
ing sectors regulated in the EU ETS. The 7.7% reduction in emissions and the 1.2% reduction in output suggest a decrease in emissions intensi-
ty of the manufacturing sector in 2023 compared to 2022. An important caveat of this analysis is that the scope of the reported emissions data 
does not directly align with the one from the production activity.

10   Emissions intensity can be measured by taking the ratio between GHG emissions and gross value added or GHG emissions 
and tonne of product. For more refer to European Scientific Advisory Board on Climate Change. (2024). ‘Towards EU climate 
neutrality: progress, policy gaps and opportunities’ (P.92), or 2024 State of the EU ETS report (P.19). Among other reasons, 
the trade dependency of the chemical sector has negatively affected the industry in times of geopolitical disruptions with the 
Russian war in Ukraine. Cefic (2024).

11  EIB Investment Report: Transforming for competitiveness (Box A Manufacturing firms in the EU Emissions Trading System – 

what makes the leaders stand out from the rest? P.209 – P 214).

12   The Advisory Board estimates that investments in mitigation technologies in energy and transport need to increase by at least 
a factor of four. Note that carbon emissions from transports are not currently covered by an ETS (ETS2 will become fully opera-
tional in 2027). The lack of investments in this sector cannot be ascribed to a limited effectiveness of carbon pricing. European 
Scientific Advisory Board on Climate Change. (2024). ‘Towards EU climate neutrality: progress, policy gaps and opportunities’ 
(P.236)  

4  

  Robert Schuman Centre | January 2025

To incentivise the decarbonisation of EU manufac-
turing sectors, it is important to take a sector-spe-
cific or a value chain approach rather than a tech-
nology-focused  approach.  The  risk  of  having  the 
latter is to structurally create an over-reliance on a 
certain technology and overlook alternative options 
that  would  result  in  deeper  and  faster  decarboni-
sation.15 The design of the free permits distributed 
to industrials in the EU ETS should be reassessed 
in this direction to ensure it effectively rewards de-
carbonisation.  Taking  the  example  of  the  Cement 
sector, the benchmark used for free permit alloca-
tion is defined based on clinker production. In that 
way, the design favours the established production 
method: currently, a producer does not have an in-
centive to change its cement production process by 
reducing  clinker  for  a  less  emitting  alternative  as 
it would decrease the volume of free permits it re-
ceives. Switching to a product benchmark instead 
would correct this perverse effect and push decar-
bonisation in a technology-neutral manner.16

system was also ailed by the overallocation of free 
permits to emitters, negatively affecting low-carbon 
investments.  Some  evidence  based  on  data  after 
2013  is  more  encouraging  and  points  to  the  fact 
that the system-induced investments. Overall, how-
ever, it is unlikely that the EU ETS alone will unlock 
the investments required for the development and 
application of low-carbon technologies. In this con-
text,  relying  on  multiple  policy  instruments  is  nec-
essary to achieve decarbonisation: carbon pricing, 
along with other policies such as technology man-
dates and targeted research subsidies for inducing 
and/or  diffusing  clean  innovation,  is  necessary  to 
avoid  path  dependencies  and  lock-in  of  long-lived 
high-carbon assets. The coherence of such a policy 
mix must be carefully assessed, considering syner-
gies, complementarity, and spillover and interaction 
effects. 13 

Furthermore,  there  appear  to  be  significant  differ-
ences  between  companies  regarding  their  willing-
ness  or  ability  to  invest:  the  EIB  survey  finds  that 
the percentage of the total 2022 investment budget 
dedicated  to  decarbonisation  varies  from  30%  to 
50%  across  the  surveyed  sample.  This  result  re-
flects the disparity in decarbonisation pathways of 
the different EU industries. For example, whilst the 
main emissions reduction pathway for iron & steel 
is  transitioning  to  electric  arc  furnaces,  the  most 
promising avenue for cement is the usage of carbon 
capture and storage (CCS) to capture the unavoid-
able  process  emissions.14  Both  of  these  firm-level 
technological  changes  also  depend  on  systemic 
changes such as increased green electricity supply 
and large-scale deployment of infrastructure. At the 
firm level, when the commercial viability of the most 
promising  technology  is  not  guaranteed,  invest-
ments are made to decrease emissions at the mar-
gin. In the case of the cement industry, for example, 
as CCS is still not deployed at scale, decarbonisa-
tion has implied changing the cement formulations 
with lower quantities of clinker. 

13   See for example Borghesi et al (2015) on eco innovation; Verde et al (2019) and Green (2021) for a review of the empirical 
literature; Aghion et al (2019) about innovation economics applied to climate change; Kalentzis et al (2024) and Hagendorn et 
al (2024) for analysis exploiting recent data; Rosenbloom et al (2020) for a carbon pricing criticism; Tvinnereim and Mehling 
(2018) and Grubb et al (2023) for considerations about carbon pricing as part of a policy mix.

14   Refer to JRC and Marmier, A (2023) for cement, Garcia Higuera and Van Woensel (2021) for steel. 

15   In their report, Sandbag shows that the push for CCU/S deployment is not the best solution to reach the steel sector’s decar-

bonisation and calls instead for a push to alternative steel production routes(Sandbag, 2024). Owen (2012).

16   This is a short-term measure as free allowances are foreseen to be phased out and replaced by the CBAM. Refer to Delbeke 

et al (2022) and Branger and Sato (2017).

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  Decarbonising manufacturing firms in the European Union’s Emissions Trading System

3. Uncertainty, a hurdle for low-car-
bon investments? When perceptions 
meet reality.

Firms often cite uncertainty about future energy and 
carbon costs and about regulation and taxation as 
the main barriers to decarbonisation. The respons-
es given in the EIB survey confirm this: more than 
90% of surveyed firms self-reported that uncertainty 
is hampering their investment in low-carbon techno-
logical change. European industrial firms, however, 
benefit from one of the clearest and most structured 
regulatory environments compared to their interna-
tional  competitors. This  includes  a  commitment  to 
climate neutrality by 2050 and measures to prevent 
carbon leakage, supported by long-standing strong 
climate policies. This questions whether uncertainty 
is a perceived barrier used to deflect responsibility 
or  a  real  hurdle  for  these  firms.  It  also  underlines 
the limits of self-reported information.

Environmental innovation is a process that requires 
a  long-term  commitment  from  firms  in  terms  of 
strategy  and  organisation,  decision-making  pro-
cesses, and R&D spending. Therefore, the stability 
of policies and regulations is crucial.17 The EU ETS 
is an example of a policy tool which has been re-
flecting the climate ambitions of the EU for twenty 
years. Regulators have addressed policy uncertain-
ty by setting long-term emissions reduction targets. 
Following  the  revision  of  the  EU  ETS  Directive  in 
2023, the target is to reduce covered emissions by 
62% by 2030 compared to 2005 levels. To achieve 
this, the reduction factor will be raised from 2.2% to 
4.4% by 2028. 

The  predictability  of  the  carbon  price  evolution  is 
also  key.  There  is  indeed  evidence  that  carbon 
price uncertainty negatively affects decarbonisation 
investments at the same magnitude as the effect of 
a decline in the carbon price. Reforms were imple-
mented to address this and improve the credibility 

of  the  system.  For  instance,  the  EC  introduced  a 
Market Stability Reserve (MSR) in 2019 to address 
the  surplus  of  allowances  in  the  market,  thereby 
stabilising the carbon price and reducing the risk of 
extreme  price  fluctuations. To  further  reduce  price 
volatility, a minimum price floor or a price collar has 
been  discussed,  as  well  as  Carbon  Contracts  for 
Difference  (CCfDs),  which  could  provide  financial 
certainty to firms making low-carbon investments by 
guaranteeing a stable carbon price.18 For instance, 
Germany is now offering its industries a combina-
tion of CfDs and CCfDs, which hedge against both 
energy and carbon price risks, respectively.19

However,  uncertainties  remain,  as  pointed  out  by 
the  EU  Scientific  Advisory  Board  (2024,  p.227): 
“The EU does not yet have a clear strategy to pre-
pare the carbon market and relevant sectors for the 
era of very low emissions and the prospect of the 
allowance supply reaching zero by 2040”. It is still 
unclear which role carbon dioxide removals (CDR) 
will play and if and how they will be integrated into 
the  EU  ETS  to  offset  these  residual  emissions.20 
Similarly, it is still unclear how regulators will contin-
ue to address the issue of carbon leakage. So far, 
the EU has adopted the Carbon Border Adjustment 
Mechanism  (CBAM),  which  will  start  operating  in 
2026. The CBAM will put an equivalent to the ETS 
price  on  certain  carbon-intensive  product  imports 
and will be gradually introduced with a correspond-
ing phase-out of free permits for the same products. 
However, the mechanism remains incomplete, and 
discussions are ongoing on its covered sectors and 
product  categories  and  its  compatibility  with  WTO 
rules. The EU should reduce the uncertainty of the 
emissions  trajectory  and  policy  framework  where 
possible to avoid firms taking a wait-and-see stance 
with  their  decarbonisation  investments.  In  particu-
lar, there is a need to rapidly clarify how the EU’s 
carbon  pricing  framework  will  develop  beyond  the 
2030 targets. 

17   Kyaw (2022) and Berestycki et al (2022). 

18   Refer to Fuchs et al (2024) about carbon price uncertainty; to Cornillie et al (2024), Borghesi et al (2022) and Richstein and 

Neuhoff (2022) for CCfDs; and to Neuhoff et al (2025) for a “climate contribution” approach to finance CCfDs.

19   In October 2024, the first CCfDs were signed with 15 German industrial companies.

20   Co-legislators have mandated the Commission to assess the option of integrating removals (as well as emissions from resid-
ual waste) in the EU ETS (Directive (EU) 2023/959). These assessments should be done by July 2026, with an open public 
consultation which will take place in early 2025. Raude et al (2024) for more information.

6  

  Robert Schuman Centre | January 2025

Lastly, carbon pricing does not take place in a vacu-
um. Firms’ investment decisions are driven not only 
by the carbon price but also by the overall econom-
ic situation and other incentives stemming from EU 
and national fiscal, energy, digital, financial and la-
bour  market  policies.21  Overall,  policy  consistency 
and alignment are key to ensuring the credibility of 
the  EU’s  climate  ambition  and  providing  a  favour-
able investment environment. 

4. Laggards, by choice or despite 
efforts? A call to address industrial 
firms lagging in decarbonisation.

As  the  stringency  of  the  EU  ETS  increased  over 
the years, all regulated firms are expected to have 
undertaken decarbonisation measures to a certain 
extent.  Interestingly,  some  18%  of  the  surveyed 
manufacturing  firms  reported  not  yet  having  a  de-
carbonisation  strategy  in  place  in  2023.  This  is  a 
sign that these firms project their business to con-
tinue as usual. Further, some firms have increased 
their  emissions  intensity  relative  to  their  sector 
peers.22 These firms represent “vulnerability pock-
ets” as they will be the most negatively impacted by 
the forthcoming increase in climate stringency. 

One interpretation of the phenomenon of the “busi-
ness-as-usual firms” or the firms in the “vulnerabil-
ity  pockets”  is  that  some  incumbent  actors  do  not 
consider decarbonisation as a strategic priority for 
their  activity.  Along  this  narrative,  these  firms  are 
confident  that  their  Member  States  (MS)  will  pro-
tect  them  from  the  negative  effects  of  stricter  en-
vironmental  policies. As  these  firms  often  provide 
employment and growth opportunities on a regional 
or national scale, MS have an interest in shielding 
them at the expense of the EU’s fair competition or 
decarbonisation objectives. The previous overallo-
cation of free permits exemplifies this phenomenon 
in action. Another interpretation is that these firms 
lack  the  means  to  tackle  their  decarbonisation. 
Small and medium enterprises in the energy-inten-

sive  sectors  have  been  found  to  lag  behind  larg-
er firms in terms of environmental action, hindered 
by a lack of information and awareness, regulatory 
hurdles, innovation assets, skills gaps and financ-
ing constraints.23 The two narratives are not mutual-
ly exclusive: these two types of firms likely co-exist

Faced with the challenge of decarbonisation, some 
activities are poised to decline (or even terminate) 
in specific locations. Indeed, shifting to new produc-
tion pathways will bring new cost structures and can 
change the optimal locations for an industrial site. 
This  structural  change  will  not  be  uniform  across 
Europe: regions in Central and Eastern Europe are 
the most exposed (Figure 2). As these regions are 
often  relatively  socioeconomically  weak,  distribu-
tional concerns are raised.24 There is a need to ac-
company this structural change. 

Figure  2:  Regions  most  exposed  to  the  transi-
tion  to  climate  neutrality  in  key  manufacturing 
sectors

(source OECD)

21   Baker et al (2016)

22   EIB Investment Report. (2024). Transforming for competitiveness (p 217)

23   SMEs account for more than 30% of the GHG emissions in the EU manufacturing sectors. For more information refer to OECD 
(2021), “No net zero without SMEs: Exploring the key issues for greening SMEs and green entrepreneurship”, OECD SME and 
Entrepreneurship Papers, No. 30, OECD Publishing, Paris.

24   OECD (2023), Regional Industrial Transitions to Climate Neutrality, OECD Regional Development Studies, OECD Publishing, 

Paris. 

7  

  Decarbonising manufacturing firms in the European Union’s Emissions Trading System

A  unified  European  approach  seems  appropriate 
for developing a strategy for the new landscape of 
the clean EU industry. As mentioned in the Draghi 
report, this would provide a business case for a de-
carbonised and competitive EU industry.25 Such an 
approach  could  build  on  existing  policy  flagships 
such  as  the  EU’s  Just  Transition  Mechanism  and 
Net Zero Industry Act to deploy impactful measures 
like reskilling programmes or conditioning industrial 
aid to decarbonisation targets. The upcoming Clean 
Industrial Deal will be a key opportunity to introduce 
and develop these measures.

Concluding remarks

Manufacturing  firms  must  decarbonise  for  the  EU 
to  reach  its  climate  neutrality  objective. The  latest 
trends in emissions and output show that European 
industries are not on track to meet their emissions 
reduction  targets.  Investment  levels  are  heteroge-
neous,  reflecting  the  different  decarbonisation  op-
tions faced across sectors. 

To incentivise the decarbonisation of EU manufac-
turing sectors, it is important to take a sector-spe-
cific or a value-chain approach rather than a tech-
nology-focused  approach.  The  design  of  the  free 
permits  distributed  to  industrials  in  the  EU  ETS 
should  also  be  reassessed  to  ensure  it  effectively 
rewards  decarbonisation.  One  concrete  example 
is  moving  from  a  content  to  a  product  benchmark 
for cement. In the short term, (carbon) contracts for 
difference  can  offer  relief  and  effective  de-risking. 
However, clarity is still required on the EU’s carbon 
pricing framework beyond 2030.

Decarbonisation,  however,  must  not  come  at  the 
cost  of  economic  competitiveness.  The  manufac-
turing sector is a key contributor to Europe’s econ-
omy  in  terms  of  employment  and  output.  Policies 
that may negatively affect activity must be carefully 
designed, always considering their social impacts. 

The  emergence  of  a  new  competitive  and  decar-
bonised EU industry landscape implies some man-
ufacturing  firms  may  have  to  close  down.  This 
structural  change  calls  for  increased  strategic  co-
ordination at the EU level to ensure policy accept-
ability  and  mitigate  the  negative  consequences  of 
industrial closures in the more affected regions. 

25   Mario Draghi, The future of European competitiveness, September 2024.

8  

  Robert Schuman Centre | January 2025

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9  

  RSC | Policy Brief | Issue 2025/04 | January 2025

doi:10.2870/5220854
ISBN:978-92-9466-653-6
ISSN:2467-4540
QM-01-25-024-EN-N

Robert Schuman Centre for Advanced StudiesThe Robert Schuman Centre for Advanced Studies (RSCAS), created in 1992 and directed by Professor Erik Jones, aims to develop inter-discipli-nary and comparative research on the major issues facing the process of European integration, European societies and Europe’s place in 21st century global politics. The Centre is home to a large post-doctoral programme and hosts major research programmes, projects and data sets, in addition to a range of working groups and ad hoc initiatives. The research agenda is or-ganised around a set of core themes and is continuously evolving, reflecting the changing agenda of European integration, the expanding membership of the European Union, developments in Europe’s neighbourhood and the wider world.