Fit for 55 could weaken EU industrial competitiveness

Significance

Further strengthening of the EU Emissions Trading System (ETS), combined with phasing out free allocations and introducing a Carbon Border Adjustment Mechanism (CBAM), looks likely to expose European industry to upward cost pressures at a time when they need capital to invest in emergent low-carbon industrial processes.

Impacts

• 'Carbon leakage' remains a big concern: while relocation usually has multiple motivations, it may well increase as EU carbon costs rise.
• Supply chain pressures look likely to push costs up both for EU industry and the renewables sector.
• Major investment opportunities exist in the areas of renewable energy and alternative fuels infrastructure.