The European Commission’s Clean Industrial Deal and Omnibus package supports big polluters while the EU’s climate goals are missing in action

The European Commission’s proposal for a Clean Industrial Deal (CID) presents a plan to support the competitiveness and resilience of industry. It also describes how the EU climate framework, including the future adoption of an intermediate 90% net emissions reductions target by 2040, plays a role in driving European competitiveness through decarbonisation, innovation and the creation of quality jobs. 

In so doing, the Commission rightly acknowledges that competitiveness and climate policy are interwoven, stating that decarbonisation and circularity must be at the heart of the EU’s economic policy if it is to keep up with resource-rich competitors. 

However, Carbon Market Watch is disappointed that a concrete legislative proposal for a 2040 climate target is not part of the package published today. To lend credibility to positive intentions, the Commission must publish a proposal to reach climate neutrality by 2040 as soon as possible.

“The Commission has delivered its plan for a Clean Industrial Deal today. Although it is certainly industrial, it is far from clean,” says Carbon Market Watch’s Executive Director Sabine Frank.

Separate 2040 climate targets

The missing 2040 target proposal should be based on a gross, not a net, emissions reduction target of at least 92% to put the EU on track to deliver its fair share of global efforts and achieve the goals of the Paris Agreement.  

Furthermore, in line with the ESABCC’s recommendations, Carbon Market Watch believes the EU Climate Law should be amended to set legally binding targets for three activities often conflated in the policy debate – gross emissions reductions, biogenic sequestration from natural sinks, and permanent removals.

Setting separate and clear climate targets is critical not only for ensuring the EU remains serious about its plans to slash emissions, but also to send the right signal and provide an appropriate regulatory space to develop high-quality permanent removals and stay focused on enhancing the EU’s land sink. 

Also, the Clean Industrial Deal does not clarify the scientific principle that “captured carbon” can only represent a removal if it is of atmospheric or biogenic origin and if it is permanently stored. That a revision of the Emissions Trading System to incentivise permanent removals is a consideration, is also highly problematic.

“Removals should be pursued in addition to deep emissions reductions and through workable and science-based policy and instruments,” says Fabiola De Simone, policy expert on carbon removals at Carbon Market Watch. 

Funding a climate fightback

While the targets need to be improved, the proposal outlines some positive steps to strengthen EU funding for decarbonisation. Critical, in Carbon Market Watch’s view, is to ensure the EU’s Innovation Fund delivers innovative decarbonisation solutions and does so at a faster pace by eliminating free pollution permits to heavy industry.

In 2023 alone, EU governments lost €40 billion to free allocation which could have been collected between the EU Innovation Fund and member states to foster decarbonisation and support climate action, according to our latest report. Carbon Market Watch emphasises the importance of revising faulty benchmarks for free allowances under the EU’s Emissions Trading System (EU ETS), which also impacts the distribution of free allowances under the Carbon Border Adjustment Mechanism (CBAM. 

“As European Climate Commissioner Wopke Hoekstra said himself: the ETS is a strong tool to help the EU reach its climate goals,” explained Lidia Tamellini, CMW policy expert on EU industrial decarbonisation. “To guide Europe towards zero emissions by 2040, the EU ETS must be set up to deliver what it is intended for: full application of the polluter pays principle and raising revenues to support climate action.”

Moreover, ETS revenues should not be used only for industrial decarbonisation. The European Union needs also to target resources towards the reskilling of workers, as well as to shield vulnerable people and households from the damage caused by climate change, for adaptation, for biodiversity protection, and much more.

The Clean Industrial Deal encouragingly proposes to set up an Industrial Decarbonisation Bank aiming to maximise emission reductions. Even better would be the inclusion of raw material savings and enhanced circularity. 

The European Commission falls short of ensuring state aid rules and public funding come with decarbonisation strings attached and clawback clauses if goals are not met. It’s also worth noting that electricity-intensive industry already receives significant aid – such as indirect cost compensation and state aid from national and regional governments. 

Compensation costs need to be justified and only distributed to those who comply with energy efficiency rules and ambitious decarbonisation plans. This will also allow the full inclusion of indirect emissions under the CBAM in the freshly announced review of early 2026. 

Action Plan for Affordable Energy

The European Commission also presented an ‘Action Plan for Affordable Energy’ to reduce energy costs and accelerate the transition towards renewable energy and energy savings.

“This plan is a welcome development at a time when energy prices are a burden for people across the EU,” observed Eleanor Scott, policy expert on EU carbon markets. “Lowering taxation on electricity and removing non-energy cost components from electricity bills is a necessary step but European member states need to go further to properly prepare for the introduction of ETS2 in 2027, which extends carbon pricing to buildings and road transport.” 

By not setting a timeline to phase out fossil fuels and instead “exploring options to fund gas infrastructure abroad”, the European Union is undermining its own climate action, sends a confusing investment signal, wastes public resources and increases dependence on price-volatile dirty fuels from abroad with no benefits to people in the EU.

To provide economic and social benefits for people, renewable energy is the most cost effective solution. Public funds must be allocated to increasing renewable access and energy savings, particularly in buildings and road transport sectors.

CBAM made simpler

In the Omnibus package, the Commission proposes simplifications for CBAM importers. While a lot of importers will be exempted from the regulation, the Commission indicated  the change scope will cover 99% of the greenhouse gas emissions considered. 

“As Carbon Market Watch’s recent research on large polluters under the EU ETS has shown,  a handful of big conglomerates are responsible for the majority of CO2 emissions, in Europe and beyond. Let’s start making them pay now – globally,” said Lidia Tamellini.

Details of the Commission proposal include  an annual mass-based import threshold, the shift of the deadline for handing over allowances from May to October, and a lowered threshold for the obligation to purchase CBAM certificates, are further concessions made to importers to allow them to easily comply with the tool. 

Industry and importers have obtained significant decreases of their administrative burden. With this now achieved, Carbon Market Watch underscores that everything is in place to go ahead with the implementation of CBAM in 2026, as originally planned, and the phase out of related free allowances in the EU to ensure the instrument allows for the same treatment of EU-produced and imported goods. We want everyone, in the EU and beyond, to pay their dues for harmful emissions. 

The default carbon prices that will be proposed by the Commission in a dedicated delegated act will need to be carefully assessed: as different countries developed their own carbon accounting methodologies, Carbon Market Watch warns it will be essential to keep track of what a “carbon price effectively paid” in a third country is. 

While it’s encouraging that any rebates will be subtracted from the carbon price paid, it is also important to assess how each carbon pricing system distributes free allowances that prevent the accountability of large polluters. The EU ETS and CBAM also need to develop mechanisms to ensure that carbon prices do not fall below a sustainable threshold and that carbon offsets and removals are excluded. 

Backpedalling on corporate sustainability

While simplification of CBAM seems to generally be proportional and tries to salvage the environmental integrity of the instrument, the same cannot be said for the rest of the Omnibus package: the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD) have been significantly scaled back, weakening EU leadership on sustainability reporting.

Due diligence is no longer an ongoing obligation, and transition plans can simply be shelved with no consequence. 

For the sake of consolidating transition plan criteria, the Commission proposes to make transition plans paper solutions to decarbonisation, rather than tangible, risk-management and business strategy instruments.

“The Omnibus package was meant to simplify corporate sustainability regulation, but instead, it weakens it,” said Benja Faecks, policy expert on global carbon markets. “By scaling back the scope of the CSRD and stretching the CSDDD reporting cycle to five years, this package lowers ambition at a time when we need more action, not less.”  

This bureaucratic rollback risks undermining corporate accountability across the EU. What was meant to streamline EU law now shifts key responsibilities to national regulators, excluding civil society from the process, thereby fragmenting the system rather than strengthening it.