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:

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