The Finnish Forest Industries Federation welcomes the European Commission’s proposal to revise the EU Emissions Trading System (EU ETS) Directive. The proposal takes important steps by recognising the need to safeguard industrial competitiveness, address carbon leakage risks, enable permanent carbon removals and account for the unique conditions of winter navigation. As negotiations progress, the co-legislators should ensure that the EU ETS provides the investment certainty needed to accelerate industrial decarbonisation in Europe while maintaining a level playing field and rewarding early movers.

The EU ETS is central to Europe’s industrial decarbonisation. As the system evolves, it must continue to support investment in low-emission technologies while ensuring that European industry remains competitive globally, particularly where international competitors are not subject to comparable carbon costs.

The Finnish forest industry competes globally for both markets and investment. Maintaining benchmark-based free allocation remains essential to prevent carbon leakage and ensure that investments in low-carbon production continue to be made in Europe rather than elsewhere. As such, free allocation should be maintained for as long as European producers compete with producers outside the EU that are not subject to equivalent carbon costs.

While the Commission proposes extending the current system, it leaves one significant inconsistency unaddressed. Under the current rules, production facilities that rely on biomass for more than 95% of their energy use are excluded from the EU ETS. As a result, some of the most climate-efficient industrial installations are also excluded from receiving free emission allowances.

“The EU ETS should reward, not penalise, industrial frontrunners. The current rules create a clear inconsistency by excluding some of the lowest-emission industrial installations from the system, weakening the investment incentives needed to accelerate industrial decarbonisation. Correcting this would strengthen both the effectiveness of the EU ETS and Europe’s long-term industrial competitiveness,” says Kaisu Karvala, Director, EU Representative, Finnish Forest Industries Federation.

Technological Carbon Removal Need a Credible Business Case

The Commission’s proposal is a welcome step towards integrating technological and permanent carbon removals into the EU ETS. If implemented effectively, it could create new demand for permanent removals and provide a stronger investment signal for carbon capture, utilisation and storage (CCUS).

The Finnish forest industry has significant potential to deliver additional climate benefits through the capture and permanent storage of biogenic CO₂. Unlocking that potential will require a credible and predictable business case that gives companies the confidence to invest in these technologies at scale.

“Permanent carbon removals need a credible and predictable business case. The EU ETS can play an important role by creating long-term demand and the investment certainty needed to scale up these technologies in Europe,” Karvala emphasises.

The Structural Challenges of Winter Navigation Must Continue to be Recogonised

The Commission’s proposal continues to recognise the additional costs associated with winter navigation, an essential element for Finland’s export industries. Operating in ice conditions requires higher energy consumption that cannot be avoided through conventional energy-efficiency measures.

While the Commission proposes extending these provisions until 2035, this recognition should become a permanent feature of the EU ETS. Finland’s geographical and climatic conditions are not temporary, and the regulatory framework should continue to reflect these structural operating realities.

The Commission’s proposal now enters the EU legislative process, with discussions in the Council and the European Parliament expected to begin after the summer recess. As the co-legislators consider the proposal, the revised EU ETS should continue to deliver cost-effective emissions reductions while reinforcing Europe’s industrial competitiveness, preventing carbon leakage and providing a predictable framework for investment in industrial decarbonisation.