On the proposal for a regulation of the European Parliament and of the Council establishing the Temporary Decarbonisation Fund

The Carbon Border Adjustment Mechanism (CBAM) forms an integral part of a broader European industrial and climate strategy. Its core objective is to strengthen the European Union’s capacity to deliver ambitious climate action while preserving a robust industrial base. By ensuring that European industries covered by the EU Emissions Trading System (ETS) compete on fair terms with international producers, CBAM contributes to creating a level playing field. Ultimately, it aims to stimulate decarbonisation investments within the EU, enhance industrial resilience, and reduce structural dependencies on imported fossil fuels.

The transitional phase of the CBAM has highlighted both the relevance of the instrument and the need to improve its functioning. In particular, it has revealed residual risks of carbon leakage affecting certain sectors. These risks arise notably from the progressive reduction of free allowances under the ETS and from cost pressures on raw materials, especially when European producers compete with operators not subject to equivalent climate constraints abroad. In this context, the European Parliament called on the Commission to develop a targeted response already early in the process of the CBAM creation. The Temporary Decarbonisation Fund (TDF), as proposed by the Commission, constitutes such a response and is therefore strongly welcomed.

The Fund should however not be considered as a standalone solution. It can provide meaningful support to parts of European industry in their decarbonisation efforts, but its effectiveness depends on its integration within a coherent and comprehensive policy framework. In this framework, the ETS must remain the central driver of EU climate policy, ensuring a strong, stable and credible carbon price signal. Complementary instruments – including the European Competitiveness Fund and the future Decarbonisation Bank – must act as key enablers of industrial transformation. In parallel, the CBAM should continue to evolve and expand, providing a stable and predictable environment for long-term decarbonisation investments.

Against this background, the Rapporteur proposes to strengthen the Fund so that it becomes larger in scope, faster in delivery, and more predictable in its functioning, thereby ensuring that it is fully fit for purpose and capable of contributing to the broader aim to better channel investment into decarbonisation.

1/A stronger fund

The Commission proposal limits eligibility to operators directly covered by the ETS. While this constitutes a logical starting point, it fails to account for the transmission of carbon costs along value chains. In practice, many economic actors are indirectly but significantly affected by both the ETS and CBAM. This is particularly the case for downstream operators, such as small and medium-sized enterprises in steel value chains or agricultural actors facing rising input costs, notably for fertilisers. These operators are exposed to carbon cost increases without being directly covered by the ETS and, therefore, without access to support under the current proposal. To address this gap, the Rapporteur proposes the creation of a specific category of downstream operators. These would include entities not directly covered by the ETS but producing goods falling within the scope of this Regulation and facing a demonstrable cost increase linked to CBAM-covered inputs.

For these downstream operators, the carbon cost push criterion, already used in the context of the CBAM extension to downstream products, appears particularly relevant. This indicator – reflecting both direct and indirect carbon cost increases relative to gross value added, combined with trade intensity – provides a robust and objective basis for calibrating the level of financial support. Furthermore, in order to ensure that the Fund effectively supports the decarbonisation transition rather than merely compensating for competitiveness losses, access to support should be conditional upon credible climate commitments. These conditionalities should, however, be proportionate and adapted to the specific capacities and constraints of smaller downstream operators.

In addition to the extension of the fund for the downstream operators, the rapporteur proposes to expand the product scope of the Fund in order to better target the value chains at risk and does so by using a 25% trade intensity criteria instead of 30%.

2/A faster, simpler and more flexible instrument

Under the Commission proposal, the TDF is designed as a one-off instrument, with a single application and a single disbursement, expected by the end of 2029. However, the phase-out of free allowances and the implementation of CBAM began as of 1 January 2026, meaning that operators are already bearing additional carbon costs today. Providing compensation only several years later risks undermining both the economic effectiveness, especially for SMEs that may likely be in the scope now given the modification of the eligible operator that the rapporteur proposes. In this context, the Rapporteur proposes an optional two-call structure, without prejudice to the single-call option for companies that prefer it:

· A first call for applications with a submission deadline of 31 March 2027, allowing a first payment in 2027 – enabling compensation for costs incurred in 2026.

· A second call for applications, following the original Commission timeline, would then cover costs incurred in 2027 and subsequent years.

Companies would retain full flexibility to choose whether to participate in one or both calls, or to wait for the single-call option. This two-step approach responds to the need for simplification and acceleration of European instruments, as highlighted notably in the Draghi report, while accommodating the diversity of administrative capacities across companies. In parallel, the Rapporteur proposes to shorten the procedural timelines applicable to both national competent authorities and the Commission, in order to ensure a more timely delivery of support.

3/A safer and more predictable framework

A key objective of the Rapporteur’s amendments is to enhance predictability for economic operators.

· First, as regards exports, the Rapporteur proposes to clarify that the Fund will support only the share of production that is effectively exposed to carbon leakage risks on markets outside the European Union. This clarification improves transparency and legal certainty for businesses. At the same time, to avoid any risk of the Fund being perceived as an export subsidy mechanism, it is clearly specified that climate conditionalities apply to all beneficiaries, irrespective of their market orientation.

· Second, the proposal strengthens the predictability of revenue use. The Commission proposal already introduces an important innovation by earmarking CBAM revenues for supporting decarbonisation in ETS and CBAM-covered sectors. This represents a first step towards a more strategic and effective use of carbon pricing revenues at EU level. This is particularly relevant in light of the current underperformance in the use of ETS revenues by Member States in supporting industrial decarbonisation. The TDF therefore constitutes a meaningful step ahead of the forthcoming broader review of EU climate legislation.

4/The specific case of farmers and fertilisers

In the short term, the introduction of CBAM leads to an increase in the price of fossil-based fertilisers imported into the EU. Many farmers remain highly dependent on these inputs and face limited short-term alternatives. This situation creates immediate cost pressures, particularly for agri-food operators active on international markets, where the ability to pass through additional costs is limited. In this context, suspending the CBAM for the fertiliser sector, as provided by the Article 27a proposed by the Commission is not a solid answer since it brings about an enormous uncertainty for investors and companies investing in the decarbonisation of the fertiliser industry within the EU. It is the wrong answer to a real problem.

However, the impact on agriculture is real, and looking to offset the additional cost for the exporting part of our agriculture while investing in our own EU and decarbonised fertiliser industry makes a lot of sense. It is therefore justified to extend access to the Fund to certain agri-food operators in that perspective, notably those producing export-oriented cereals such as wheat and barley. These sectors are directly exposed to competitiveness losses resulting from increased upstream carbon costs. For these operators, conditionalities should be specifically tailored. Rather than imposing immediate and potentially unrealistic decarbonisation requirements, support should prioritise measures that contribute to reducing fertiliser use in the short term. This approach should be understood as a transitional measure, addressing immediate competitiveness challenges, and should not substitute for the broader structural objective of reducing fertiliser dependency in European agriculture and fostering the development of a competitive market for low-carbon and European-produced fertilisers. Finally, it should be highlighted that carbon price is only a fraction of the additional cost related to energy prices surge and that the long-term solution is to decrease our level of dependency on carbon intensive imports.

Conclusion

With these adjustments, the Rapporteur considers that the Temporary Decarbonisation Fund can deliver genuine added value within the EU’s climate and industrial policy framework. By improving its scope, speed, and predictability, the Fund can strengthen the effectiveness of the CBAM, support the decarbonisation of European industry, and contribute to enhancing the sovereignty, resilience, and strategic autonomy of the European economy.

Pursuant to Article 8 of Annex I to the Rules of Procedure, the rapporteur declares that he included in his report input on matters pertaining to the subject of the file that he received, in the preparation of the draft report, from the following interest representatives falling within the scope of the Interinstitutional Agreement on a mandatory transparency register, or from the following representatives of public authorities of third countries, including their diplomatic missions and embassies:

The list above is drawn up under the exclusive responsibility of the rapporteur.

Where natural persons are identified in the list by their name, by their function or by both, the rapporteur declares that he has submitted to the natural persons concerned the European Parliament's Data Protection Notice No 484 (https://www.europarl.europa.eu/data-protect/index.do), which sets out the conditions applicable to the processing of their personal data and the rights linked to that processing.

8.7.2026

for the Committee on the Environment, Climate and Food Safety

on the proposal for a regulation of the European Parliament and of the Council establishing the Temporary Decarbonisation Fund

(COM(2025)0990 – C100353/2025 – 2025/0418(COD))

Rapporteur for budgetary assessment: Danuše Nerudová

The Committee on Budgets has carried out a budgetary assessment of the proposal under Rule 58 of the Rules of Procedure and has reached the following conclusions:

The Committee on Budgets,

A.whereas the proposed Temporary Decarbonisation Fund (TDF) complements the EU Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM) by providing financial support to operators in energy intensive sectors facing a remaining carbon leakage risk;

B.whereas the proposed measure is targeted, limited in volume and temporary until a more structural solution to the carbon leakage problem is devised by the upcoming revision of the ETS;

C.whereas the Member States are to transfer 25 % of their CBAM revenues to the Commission in 2028 and 2029; whereas these contributions are to be treated as external assigned revenue to fund the new budget line for the TDF;

D.whereas Parliament has repeatedly called for the CBAM to serve as the basis for a new EU own resource; whereas the latest Commission proposal for a new system of own resources includes the introduction of a new own resource based on the CBAM; whereas the Council has still not adopted the CBAM as an own resource five years after the Commission first proposed this in 2020;

E.whereas the Commission is to present a report on the implementation of the TDF to Parliament and the Council by 31 December 2030;

F.whereas on numerous occasions, Parliament has highlighted the challenges associated with the treatment of external assigned revenue in terms of budgetary transparency and procedural accountability;

1.Considers that the rationale and the operating principles of the TDF illustrate how the EU budget can be used to pursue the Union’s climate objectives, while improving the competitive position of the EU industrial sectors that are sensitive to the carbon leakage dilemma; underlines that any support mechanism must safeguard the competitiveness of EU industry and preserve a level playing field on the global market; deeply regrets, in this context, the fact that the Just Transition Fund is not included in the Commission’s proposal for the 2028-2034 multiannual financial framework (MFF), as it previously played a key role in supporting vulnerable regions and households, particularly those where energy-intensive industries are often located, in the transition towards decarbonisation; underlines the importance of ensuring that support for the transition remains targeted, efficient and consistent with the principles of sound financial management;

2.Welcomes the fact that public revenue, which is generated through the implementation of EU legislation and the enforcement of EU regulations such as the CBAM Regulation, is used to finance expenditure at EU level, albeit outside the EU own resources system;

3.Welcomes the proposed share of 25 % of CBAM proceeds to be made available by the Member States, as it is compatible with the Commission’s proposal to use 75 % of proceeds from the CBAM as own resources for the general budget, and with Parliament’s established position on own resources;

4.Suggests that a similar accompanying initiative be launched under the relevant external development instruments to further accelerate the decarbonisation of carbon-intensive industries in least developed countries, in compliance with the EU’s international commitments, in particular the Paris Agreement, and to ensure better policy coherence, in this regard;

5.Confirms that expenditure financed by external assigned revenue is not counted against MFF ceilings and that therefore, by default, the proposal is compatible with the current and 2028-2034 MFFs;

6.Recalls that one quarter of the CBAM revenue collected by Member States in this very early phase of implementation will yield only around EUR 300 million to EUR 350 million per year; recalls that this revenue is also intended to cover a modest amount of administrative support costs, which means that only around EUR 600 million will be available for calls for applications under the TDF in 2028 and 2029; estimates that these amounts might be marginally higher if the extension of the scope of the CBAM Regulation to certain downstream products will have taken effect by then;

7.Considers that any revenues remaining after full disbursement should be reused to support the decarbonisation of energy-intensive industries; calls on the Commission, in that regard, to submit, by 31 March 2030, a legislative proposal providing for the use of such revenues to grant additional support to operators in the sectors covered by this regulation, in accordance with the objectives set out in Article 1 thereof;

8.Calls on the Commission to present, by December 2028, an implementing report covering the applications received, the sectors and installations concerned, the level of demand for support, and an assessment of whether the available appropriations are sufficient to meet that demand; calls on the Commission, on the basis of that report, to assess whether a prolongation of the programming period is necessary; further calls on the Commission, in that context, to assess whether the monitoring, verification and reporting obligations provided for in the regulation are being implemented in a manner that takes account of the size, resources and administrative capacity of undertakings, in particular small and medium-sized enterprises, thereby avoiding unnecessary administrative burdens;

9.Recalls that the earmarking of revenue for particular spending purposes is to be avoided as a matter of principle; acknowledges, however, that the temporary nature and specific purpose of the TDF justifies an exception to the principle of universality of revenue; recalls that, in order to avoid the risks of a ‘shadow fund’ and the proliferation of the ‘budgetary galaxy’, assigned revenue must be subject to additional scrutiny and transparency provisions; insists, therefore, that the Commission report comprehensively and from the outset on the implementation of the fund; requests, more specifically, a detailed description and periodic documentation within the framework of the annual budgetary procedure, and in particular in the working document (Part V) accompanying the draft budget, dedicated to assigned revenue;

10.Asserts that new budget lines must be introduced and approved by the budgetary authority, both on the revenue and expenditure sides of the budget and for operational and administrative expenditure;

11.Takes note of the estimated administrative costs of approximately EUR 1 million per year, and the fact that these are to be covered by redeployment in 2026 and 2027, and by external assigned revenue once available until 2031;

12.Emphasises that the new fund, even though it is temporary and financed by external assigned revenue, is subject to legal provisions protecting the financial interests of the Union, such as the rule of law conditionality; insists that the protective measures to prevent fraud and irregularities set out in Article 12 of the proposal must not be weakened in the course of interinstitutional negotiations.

As part of its budgetary assessment, the Committee on Budgets also submits the following amendments to the proposal:

Amendment 1

Proposal for a regulation Recital 17 a (new)

Amendment 2

Proposal for a regulation Recital 17 b (new)

Amendment 3

Proposal for a regulation Article 3 – paragraph 4

Amendment 4

Proposal for a regulation Article 4 – paragraph 2 a (new)

Amendment 5

Proposal for a regulation Article 4 – paragraph 3

The rapporteur for budgetary assessment declares under her exclusive responsibility that she did not include in her budgetary assessment input from interest representatives falling within the scope of the Interinstitutional Agreement on a mandatory transparency register, or from representatives of public authorities of third countries, including their diplomatic missions and embassies, to be listed in this Annex pursuant to Article 8 of Annex I to the Rules of Procedure.

for the Committee on the Environment, Climate and Food Safety

on the proposal for a regulation of the European Parliament and of the Council establishing the Temporary Decarbonisation Fund

(COM(2025)0990 – C100353/2025 – 2025/0418(COD))

Rapporteur for opinion: Massimiliano Salini

The European Commission’s proposal concerning the Carbon Border Adjustment Mechanism (CBAM) includes the creation of a Temporary Decarbonization Fund.

This fund is designed to provide transitional and targeted financial support to European producers operating in several energy-intensive industrial sectors, including aluminium, fertilizers, iron, and steel pending the long-term solution which will be found in the proposal for a revision of the EU ETS in 2026. These sectors are particularly exposed to international competition and face a significant risk of losing competitiveness in markets outside the European Union during the transition to a stricter carbon pricing framework.

The main objective of the fund is therefore to temporarily compensate for the competitive disadvantages of the gradual phase-out of free allowances under the EU Emissions Trading System (ETS), which has historically helped mitigate carbon costs for certain industries. This measure may create additional cost pressures for EU producers, especially when they export goods to third countries that do not apply any equivalent carbon pricing mechanism.

In this context, the Temporary Decarbonization Fund is intended to act as a safeguard measure, ensuring that European industry can continue to compete internationally while adapting to the new regulatory environment and investing in decarbonization. The proposal identifies a range of products that are considered eligible to benefit from the financial support made available through the fund.

The Rapporteur notes that the proposal is limited in scope and time to prevent overlap with the EU ETS revision and reiterates the absolute necessity of having a permanent export solution for those CBAM-sectors most exposed to export activities. He regrets in that regard that CBAM so far has only addressed carbon leakage for imports and not for exports, and that the Commission has not yet come up with such a permanent export solution to address the risk of carbon leakage for CBAM goods exported from the EU as previously called for by the European Parliament. The Rapporteur is of the opinion that the free allowances for energy-intensive sectors should remain as long as CBAM does not address the export risk of carbon leakage. He therefore urges the Commission to present, as part of the ETS review, a proposal preventing the carbon leakage risk on export markets on a permanent basis. In the absence thereof, and in the meantime, the Rapporteur is willing to work constructively on the Temporary Decarbonisation Fund.

Given the uncertainty surrounding the magnitude of carbon leakage risks, particularly for export-oriented sectors, and the limited initial financial envelope of the Fund, it is necessary to provide for an early and comprehensive review of its effectiveness.

This report ensures that the Commission assesses whether the scope of eligible sectors and the level of financial resources are sufficient to meet the Fund’s objectives. It also introduces an obligation for the Commission to accompany that assessment with a legislative proposal, where appropriate, to expand the scope of the Fund and increase its financial capacity, including through a greater mobilisation of CBAM revenues.

For those eligible products, the financial support provided by the fund must be adequate to cover the additional carbon costs generated by the CBAM factor throughout the entire production process.

However, the current reference to the EU ETS free allocation regulation may be interpreted as limiting such support solely to the final stage of production, particularly in situations where the overall production process is divided among multiple installations.

For this reason, the Opinion establishes that it should be explicitly clarified that financial support must also reflect the progressive phase-out of free allocation for all relevant precursors, as defined in Regulation 2025/2620 on CBAM benchmarks, adopted pursuant to CBAM Regulation 2023/956.

AMENDMENTS

The Committee on Industry, Research and Energy submits the following to the Committee on the Environment, Climate and Food Safety, as the committee responsible:

Amendment 1

Proposal for a regulation

Recital 2

Amendment 2

Proposal for a regulation

Recital 4

Amendment 3

Proposal for a regulation

Recital 5

Amendment 4

Proposal for a regulation

Recital 5 a (new)

Amendment 5

Proposal for a regulation

Recital 8

Amendment 6

Proposal for a regulation

Recital 10

Amendment 7

Proposal for a regulation

Recital 15

Amendment 8

Proposal for a regulation

Article 2 – paragraph 1 – point c

Amendment 9

Proposal for a regulation

Article 3 – paragraph 3

Amendment 10

Proposal for a regulation

Article 3 – paragraph 6 a (new)

Amendment 11

Proposal for a regulation

Article 4 – paragraph 3

Amendment 12

Proposal for a regulation

Article 4 a (new)

Amendment 13

Proposal for a regulation

Article 6 – paragraph 1

Amendment 14

Proposal for a regulation

Article 7 – paragraph 1 – point c

Amendment 15

Proposal for a regulation

Article 7 a (new)

Amendment 16

Proposal for a regulation

Article 8 – paragraph 1

Amendment 17

Proposal for a regulation

Article 8 – paragraph 2 – point a

Amendment 18

Proposal for a regulation

Article 8 – paragraph 2 – point c – point ii a (new)

Amendment 19

Proposal for a regulation

Article 8 a (new)

Amendment 20

Proposal for a regulation

Article 9 – paragraph 1

Amendment 21

Proposal for a regulation

Article 9 – paragraph 1 a (new)

Amendment 22

Proposal for a regulation

Article 10 – paragraph 1 – point a

Amendment 23

Proposal for a regulation

Article 11 – paragraph 1

Amendment 24

Proposal for a regulation

Article 12 – paragraph 2 – point a

Amendment 25

Proposal for a regulation

Article 12 – paragraph 2 – point e

Amendment 26

Proposal for a regulation

Annex I – paragraph 1 – point 1 – table

Pursuant to Article 8 of Annex I to the Rules of Procedure, the rapporteur for opinion declares that he included in his opinion input on matters pertaining to the subject of the file that he received, in the preparation of the opinion, prior to the adoption thereof in committee, from the following interest representatives falling within the scope of the Interinstitutional Agreement on a mandatory transparency register, or from the following representatives of public authorities of third countries, including their diplomatic missions and embassies:

The list above is drawn up under the exclusive responsibility of the rapporteur for opinion.

Where natural persons are identified in the list by their name, by their function or by both, the rapporteur for opinion declares that he has submitted to the natural persons concerned the European Parliament's Data Protection Notice No 484 (https://www.europarl.europa.eu/data-protect/index.do), which sets out the conditions applicable to the processing of their personal data and the rights linked to that processing.

6.7.2026