After initially backing the EU’s planned Carbon Border Adjustment Mechanism (CBAM), EU industry has grown increasingly hostile to the carbon levy as the prospect of losing their free allowances under the EU’s Emissions Trading System (EU ETS) looms closer, according to an InfluenceMap analysis requested by Carbon Market Watch.

With the European Commission soon to publish its new package on the Carbon Border Adjustment Mechanism (CBAM), the European Union’s major industrial players are once again questioning whether the system is “ready”. 

CBAM had already been recently tweaked twice in response to industry demands, including simplification, raising the threshold, addressing export issues, and anti-circumvention measures. Yet even with these adjustments, the same industrial interests that in the past celebrated CBAM as the EU’s long-awaited answer to trade issues are now backing away. With CBAM finally being phased in and, crucially, free pollution permits under the Emissions Trading System (EU ETS) scheduled to be phased out, their support is becoming conditional, hesitant, or fully withdrawn. 

Since the inception of the EU ETS, free allocation was intended as a temporary safeguard, “justified” by fears that EU industries might relocate production, and therefore emissions, abroad where climate policies are weaker. But since the CBAM has been put in place to replace these temporary safeguards, industries should have no reason to resist its phase out. Yet, as CBAM begins to take effect, the opposite is happening: industries are pressing to maintain free allocation alongside CBAM, effectively pushing to exempt themselves from paying for most of their pollution while expecting the EU to impose a carbon price on polluting companies outside the EU exporting to the bloc.

This article uses data we requested from InfluenceMap on the publicly stated positions of Europe’s largest industrial players to examine how support for CBAM and free allocation has evolved over the past five years. Our analysis reveals that industry’s initially enthusiastic support for CBAM has waned as the planned phasing out of the free allocations it receives becomes a real prospect.

CBAM: conditional love

According to InfluenceMap’s data, many companies and associations did signal support for CBAM in the early days. Solvay, in the 2020 consultation, Eurofer, Cement Europe and ArcelorMittal from 2020 to 2023. But this “support” always came with a condition: CBAM must not replace free allocation. It can exist, as long as it doesn’t touch their advantages.

And now with the free allocation phase-out approaching, the tone has shifted. CBAM is now described as “too complex”, “not ready”, “full of loopholes”, or “unlikely to work in practice”. Eurofer now calls CBAM “half effective” while ArcelorMittal speaks of “uncertain success”. These claims all point in the same direction: slowing down the free allocation phase out. Almost all of the public positions analysed (1; 2; 3; 4; 5; 6; 7; 8) insist that free allocation should stay in place until CBAM is “proved fully effective”, a condition no one defines and that could justify endless postponement. 

Industrial lobbies are now more vocal in criticising the scheme because it’s finally about to put an end to the freebies they receive. But there is a contradiction at the core of this position: you cannot claim to support CBAM while defending free allocation, the very mechanism the carbon levy was designed to replace. The ETS Directive is clear that no free allowances will be issued to goods covered under the CBAM. After years of generous subsidies and billions in windfall profits, which undermine the polluter pays principle, the continued defence of free allocation reveals something deeper: industry is not trying to shield itself from trade impacts, but to preserve a system in which it barely pays for its pollution, a system from which many have benefited greatly.

At this stage, defending free allocation does not protect “competitiveness”; it only protects business as usual.

Paying polluters: addicted to freebies

Since the start of the ETS, the EU’s most energy-intensive sectors have enjoyed a licence to pollute with impunity, leaving society to pay the bill. Free allowances shielded them from paying for most of their emissions and even enabled them to make windfall profits, dramatically weakening incentives to clean up their production. Emissions from electricity and heat generation, which do not receive free allowances, decreased by 28.6% between 2013 and 2022 after its free allowances were phased out, whereas industrial emissions decreased by less than 9%.  

The scale of this support is staggering. Free allowances still cover around 90% of industrial emissions. Between 2021 and 2025 (Phase IV of the ETS), this means industries received roughly €39 billion worth of allowances per year, money that could’ve been invested in climate action. 

The biggest emitters received the lion’s share of these freebies. ArcelorMittal, responsible for a third of EU steel emissions, received more than €3.8 billion in free allowances in 2023, and ThyssenKrupp and Voestalpine are not far behind with €1.8 billion and €795 million. In the cement sector, Heidelberg Materials alone received almost €2 billion worth of free allowances in 2023. Holcim received €1.4 billion and CRH €807 million in 2022. Aluminium and chemicals show similar patterns

While these free pollution permits were in part submitted for compliance with the EU ETS, a large portion was monetised through sales to other polluters, leading to windfall profits. Previous CMW studies showed that heavy industrial concerns have systematically received more allowances than they need to cover their emissions, allowing for substantial windfall profits through market exchanges and cost pass-through.

For instance, ArcelorMittal accrued €1.9 billion from selling surplus allowances between 2005 and 2019. LafargeHolcim earned nearly €1 billion. Overall, heavy industry managed to cash in on surplus sales of some €8.1 billion between 2008 and 2014.

On top of that, industries can benefit from indirect cost compensation under the EU ETS. In 2024 alone, 15 national governments disbursed a total of €5.52 billion in subsidies to cover carbon costs related to electricity consumption for energy-intensive sectors. This is an increase of 40% compared to the aid handed out in 2023.  

This shows how little European manufacturers actually paid for their emissions, and the glacial pace at which free allocations will be phased out reveals just how addicted industries have become to these subsidies. Many have been able to delay their transition for years while accumulating enormous public support.

The CBAM is meant to (partly) change this, replacing free allocation through a slow, gradual path that gives industrial companies time to adapt. Starting in 2026, free allowances will start to decline with the CBAM factor beginning at 2.5% in the first year and gradually increasing up to 100% in 2034, when full carbon pricing will kick in. So even with CBAM, Europe’s largest polluters will continue to enjoy nearly a decade of freebies before being fully exposed to the carbon cost of their emissions.

All carrots, no sticks

Even after many years of generous public support and exemptions, the narrative is not changing. Industries are still trying to avoid paying for their pollution while requesting additional support for their transition, which they get. New sectoral plans (like the Steel and Metals Action Plan or the Chemical Industry Action Plan), the upcoming Industrial Decarbonisation Bank expected to mobilise €100 billion, and a very slow phase out of free allowances all add up to the same pattern: carrots everywhere, sticks nowhere.

At the same time, the latest ETS consultation reveals growing pressure from industry to redirect an even larger share of ETS revenue back to their sector. While some of the revenue should go to helping industry to decarbonise, these skewed demands fail to reflect the required redistributional effect of the polluter pays principle:  funding is needed not just for industrial decarbonisation, but also for health, climate adaptation and broader environmental investment. It’s also counterproductive, as they want to preserve free allocation and indirect cost compensation, which are the very mechanisms that drain those revenues in the first place. 

Industrial air pollution in the EU generates €268–428 billion in health and environmental damage every year. Someone has to pay that bill. Until now, the bill has been paid by society while industry profits.

Industry cannot have it both ways

One should approach the current narratives of the industrial lobby with caution. Many vested interests continue to pay lip service for the ETS and CBAM, but only as long as they don’t have to pay a real price.

But the CBAM won’t deliver climate benefits if free allocation is not phased out. 

If the EU wants a functioning ETS with a credible CBAM, it must:

• Extend CBAM to more sectors, starting with chemicals and including all ETS sectors over time.
• Phase out free allocation as planned, which is gradual enough for companies to adapt to the new costs. 
• Redirect ETS revenue to genuine transformation with strong conditionality, not perpetual subsidies for the largest polluters.

Two decades of free allowances and windfall profits have rewarded industry for business as usual. The EU cannot continue to pay polluters to pollute with impunity. Any future support must reflect societal needs, not just industry pressure.