The European Commission has approved Austrian and Spanish state aid schemes worth a combined total of over €9 billion to compensate energy-intensive companies for higher electricity prices linked to carbon costs under the EU Emissions Trading System. The decisions cover a €900 million scheme in Austria and an amended €8.51 billion scheme in Spain, both designed to refund a share of the indirect emission costs that flow into industrial power prices. Together, the approvals represent one of the largest single-day state aid clearances for industrial competitiveness measures issued by the Commission this year.

 

How Indirect ETS Costs Reach Industry

 

Under the EU Emissions Trading System, companies must purchase permits for their greenhouse gas emissions, and the cost of those permits feeds through into wholesale electricity prices across European markets. Energy-intensive industries that consume large volumes of power therefore absorb a portion of the carbon cost indirectly, even when they are not directly liable for emission allowances themselves. This pass-through effect can erode the competitiveness of European producers relative to peers in jurisdictions without comparable carbon pricing.

State aid schemes for indirect ETS costs are intended to mitigate that competitiveness gap while preserving the carbon price signal at the production level. The mechanism is structured as a partial reimbursement of costs already paid rather than an exemption from the underlying market, which keeps the incentive to reduce electricity intensity intact. Both the Austrian and Spanish schemes follow this design, applying refund caps that leave a meaningful share of the indirect cost on the company's books.

 

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Austria's New €900 Million Scheme

 

Austria's scheme carries a budget of up to €900 million and is open to sectors described as both highly energy-intensive and exposed to international trade, including iron and steel, aluminium and other metal industries, paper and chemicals. Support will be paid as a refund of up to 75 percent of indirect emission costs incurred in the previous year, with eligible costs covered from 1 January 2025 to 31 December 2029 and final payments due in 2030. The structure aligns with the EU's amended ETS State aid Guidelines, which set the framework for permissible compensation across member states.

Crucially, beneficiaries must invest at least 80 percent of the aid they receive into energy efficiency improvements or other decarbonisation measures, including renewable electricity production or process changes that reduce industrial emissions. This conditionality is designed to ensure that public funds intended to address competitiveness pressure also accelerate the underlying transition. By tying aid to reinvestment, Austria reinforces the policy objective of long-term decarbonisation rather than indefinite cost compensation.

 

Spain Extends Coverage and Raises Aid Intensity

 

For Spain, the Commission approved an amendment to an existing scheme that was first cleared in March 2022 and previously amended in November 2023. The updated framework extends eligibility to companies in additional sectors listed in the annex of the amended ETS State aid Guidelines, broadening the pool of industrial beneficiaries that can claim partial compensation. The maximum aid intensity has also been raised from 75 percent to 80 percent for sectors already covered, increasing the share of indirect costs that can be refunded.

Spain's overall budget for the scheme remains unchanged at €8.51 billion, with compensation paid through a partial refund of indirect emission costs incurred in the previous year and final payments due in 2031. The combination of broader sector eligibility and a higher aid intensity strengthens support for industries facing the steepest exposure to power-related carbon costs, particularly in heavy manufacturing and processing. The structure preserves the existing budget envelope while concentrating support more effectively on the most exposed segments.

 

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Strategic Context for European Industry

 

The approvals come at a time when European heavy industry continues to navigate elevated power prices, tightening emissions caps under the ETS and growing competitive pressure from regions with lower energy costs. The phasing out of free emission allowances for several sectors, combined with the rollout of the Carbon Border Adjustment Mechanism, is reshaping the cost base for energy-intensive producers across the bloc. State aid schemes for indirect ETS costs are designed to manage this transition without prompting industrial relocation outside Europe.

By approving compensation that is conditional on reinvestment in energy efficiency and decarbonisation, the Commission is reinforcing a policy direction in which competitiveness support and climate ambition operate in parallel rather than in tension. The schemes give industrial operators visibility on cost recovery through 2030 and 2031 respectively, which supports planning for capital expenditure on cleaner technologies. The conditionality also helps justify continued state intervention as carbon prices rise.

 

Outlook for ETS Compensation and Industrial Transition

 

The Austria and Spain decisions are likely to set a reference point for other member states preparing or amending similar indirect cost compensation schemes under the updated ETS State aid Guidelines. As carbon prices continue to influence European power markets, the volume of state aid notified and approved under this category is expected to grow further. Non-confidential versions of the Commission's decisions will be published in its state aid register under case numbers SA.121338 for Austria and SA.122532 for Spain once confidentiality issues are resolved.

The effectiveness of the schemes will ultimately be judged by whether the conditional reinvestment requirements drive measurable progress on energy efficiency and process decarbonisation across beneficiary sectors. Strong execution would demonstrate that state aid can serve dual policy objectives without diluting the integrity of the carbon price signal. Sustained monitoring through the back end of the decade will determine whether this model offers a durable template for managing industrial transition across the EU.