Written by Nicolas d’Hanis
Dear reader,
It is still January, so technically I can still say: Happy New Year! My name is Nicolas d’Hanis and as the new year begins, I am excited to announce that I have taken over the EU Energy & Climate policy update from my colleague Martijn Meijer. While the name may be new, you can still count on the same insightful updates on European climate and energy policy. I look forward to sharing the latest developments, insights, and trends with you!
Europe’s bold plan for sustainable growth, the “Clean Industrial Deal”, represents a major shift for EU businesses, especially in energy-intensive sectors. Don’t miss your chance to engage with the Commission to shape this deal and influence the policy direction for the next five years.
The spotlight
A strengthened ETS system for batteries and industry
The European Commission has adopted an important amendment to the Emissions Trading System (ETS) State Aid Guidelines to mitigate the heightened risk of carbon leakage within the Union’s most energy-intensive industries. By modernising these guidelines, the Commission aims to ensure that the indirect costs of carbon pricing, specifically those reflected in high electricity prices, do not drive essential industrial activity and production out of the EU. This reform directly addresses the ongoing increase in emission costs for European manufacturers, who face stricter carbon regulations than their international counterparts.
Preventing carbon leakage in battery production
A central feature of this amendment is the expansion of the list of industrial sectors eligible for compensation for these indirect emission costs. Notably, the manufacture of batteries has been formally added to the eligibility list, alongside organic chemicals and specific activities in the ceramic and glass sectors. This inclusion recognises the critical role of batteries in the energy transition and the substantial electricity demand inherent in their production. For sectors that were already eligible before this amendment, the maximum aid intensity has been increased from 75% to 80% to cater to their increased risk of carbon leakage. Furthermore, Member States retain the flexibility to notify additional sectors or subsectors for compensation if they can demonstrate a genuine risk of relocation due to carbon costs.
Updating emission benchmarks factors
The revised guidelines also update the CO2 emission factors and geographic areas for the 2026 to 2030 period based on the most recent data available. These factors reflect the carbon content of fossil fuels used for electricity production in specific regions and are used to determine the exact amount of compensation granted. In instances where the decrease in the applicable regional CO2 emission factor is particularly large compared to the 2021 to 2025 period, the amendment allows Member States to apply a gradual transition to avoid sudden shifts in support levels.
Aligning industrial aid with the green goals
Crucially, the Commission has linked this financial relief to the EU’s broader climate objectives by requiring large beneficiaries to contribute directly to the green transition. Under the new rules, these companies must invest a share of the aid they receive into projects that reduce the costs of the electricity system or otherwise support decarbonisation. This ensures that while the battery sector and other energy-intensive industries receive the protection necessary to remain competitive, they are simultaneously incentivised to lead the transition toward a lower-carbon economy.
Strategic outlook
Member States will need to evaluate their existing aid schemes to ensure they comply with the revised guidelines. For industry players, the focus now shifts to the implementation of the green investment requirements. Large beneficiaries must prepare to demonstrate how their share of the aid is being funnelled into projects that lower electricity system costs or advance decarbonisation. As the 2026-2030 period approaches, this framework will be essential for maintaining a level playing field, ensuring that European battery manufacturing remains a cornerstone of the Union’s energy independence and industrial strategy.
Impact analysis for your business
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Policy updates
EU and India sign ‘mother of all trade deals’
On 27 January, the EU and India concluded one of the world’s largest free trade agreements at the 16th EU-India Summit, creating a free trade zone between the two largest democracies in the world, covering 2 billion people (around 25% of the global population) and almost 20% of global trade. Among other, the deal emphasises accelerating renewable energy through the EU-India Clean Energy and Climate Partnership and strengthens cooperation on deploying green hydrogen and wind energy, including the announcement of an EU-India Wind Business Summit in 2026.
Council green-lights Russian gas ban
On 26 January, the General Affairs Council approved the REPowerEU ban on Russian LNG and pipeline gas from early 2026. The Parliament had already endorsed the ban during a plenary vote in December. The regulation requires Member States to verify the origin of imported gas and establishes penalties for non-compliance. In addition, by March 2026, Member States must submit national diversification plans and disclose any remaining Russian gas contracts, with similar obligations for those still importing Russian oil. The ban will begin six weeks after the regulation enters into force, with transitional arrangements for existing contracts. A full prohibition will apply to LNG imports from early 2027 and to pipeline gas from autumn 2027.
New publication date for the Industrial Accelerator Act
After several delays, the Industrial Accelerator Act (IAA) is now set to be published on 25 February. The Commission wants to be confident the strategy is on solid legal ground and will not accidentally create barriers that restrict competition or limit free trade. Others point to controversy surrounding France’s push to include a “European preference” for energy-intensive industries, green technologies, and public procurement as the reason.
2040 target on its way to be formally adopted
On 19 January, the Environmental Committee (ENVI) voted in favour of the provisional agreement on the European Climate Law amending act, which introduces a binding target of a 90% reduction in greenhouse gas emissions by 2040 compared with 1990 levels. The agreement allows for flexibilities including the use of up to five percentage points of high-quality international carbon credits from 2036 and postpones the ETS2 introduction from 2027 to 2028. The agreement will now have to go through a plenary vote, scheduled during the 9-12 February session, and will have to be ratified by EU ministers in the Council.
New CBAM rules take effect
On 1 January 2026, the carbon border adjustment mechanism (CBAM) definitive regime officially came into effect. This follows a package of draft implementing and delegated acts published by the Commission on 17 December 2025, setting out technical methodologies for calculating embedded emissions and introduces a temporary support fund for EU producers covered by CBAM in 2026-2027, aimed at easing the transition away from free ETS allowances.
Blog
Carbon Capture, Utilisation and Storage (CCUS): what is the EU's plan
Learn more about how CCUS works, its practical applications, how it differs from direct carbon removals (CDR), and why it is a key part of the path toward a climate-neutral future.
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