The EU Emissions Trading System (ETS) continues to reward heavy polluters by granting them free allowances instead of incentivising emissions reductions, the World Wide Fund for Nature (WWF) has argued. The NGO has published a paper outlining its finding that €40 billion (US$41.9 billion) was lost to free allowances in 2023, instead of being reinvested into the decarbonisation of ETS-covered hard-to-abate sectors like steel and cement. EU-based oil refining companies received more than 73 million free allowances in 2023 – equivalent to €6 billion – the report added. Steel giant ArcelorMittal received more than €3.8 billion in free allowances in 2023. ‘Free allowances’ refer to permits issued every year under the scheme to cover some of the cost of carbon heavy-emitting industries are expected to pay. One of the main drivers behind forming the ETS was to shield the EU from the risk of industries relocating to regions not covered by the same climate rules, while still encouraging these industries to shift to low-carbon operations. WWF has argued that the existing structure of the ETS has allowed the sectors such as the manufacturing industry to lag behind, noting that it has decreased carbon pollution by less than 15% since 2013. With the ETS set to gradually be replaced with the Carbon Border Adjustment Mechanism from 2027, WWF has emphasised the importance of this application timeline remaining in place, shunning calls for a two-year delay, which the NGO has predicted would deprive the Innovation Fund of around €20 billion of resources.
