The EU Green Deal can offer European industry investment opportunities for transitioning towards climate neutrality. It also offers a long-term perspective to investors to motivate them to maintain sites and staff through the current crisis.

This policy brief by the Climate Friendly Materials Platform discusses how the CBAM file (carbon border adjustment mechanism) and EU ETS file (free allocation) together can play a major role in creating effective incentives for a climate-friendly modernisation of European industry while addressing leakage concerns.

The authors argue a CBAM based on standardised values (climate contribution) offers an alternative to the EU Commission proposal. It would ensure effective carbon price incentives on the EU Single Market without carbon leakage and independent from third countries’ climate actions.

In combination with Carbon Contracts for Difference, the approach brings the following benefits:

• Leakage concerns are addressed for exports and imports along the value chain
• Incentives are provided for material producers and all actors along the supply chain
• Coverage is expanded to a broader set of materials and indirect emissions
• Perspective is clear for investors, resolving international uncertainties and declining ETS cap
• Contribution to global climate action is delivered at home and supported abroad.