A new report by Carbon Market Watch and WWF reveals that Europe’s carbon market continues to favor heavy industry, offering billions in free pollution permits instead of financing the clean industrial transition. In 2023, major polluters, including steel and cement producers, received excessive carbon allowances—sometimes more than they actually needed—effectively subsidizing emissions rather than curbing them.
This policy has cost society an estimated €40 billion—funds that could have been redirected toward clean energy innovation and industrial decarbonization. The findings come just ahead of the European Commission’s announcement of its Clean Industrial Deal, emphasizing the urgent need to phase out free carbon allowances and reinvest the revenue in sustainability efforts.
Industries Profiting from Carbon Market Loopholes
The report highlights how companies continue to benefit from these flawed policies, receiving pollution permits at no cost while making minimal progress in reducing emissions. The steel sector, one of the most carbon-intensive industries in the EU, was granted €11.3 billion in free allowances in 2023 alone, allowing it to emit greenhouse gases without financial consequences. 
Among the biggest beneficiaries were steel giant ArcelorMittal, which received €3.8 billion worth of free permits—140% of its actual emissions, and cement manufacturer Heidelberg, which secured nearly €2 billion, covering 106% of its pollution levels. Instead of paying for their environmental impact, these companies not only escape carbon costs but also profit from surplus allowances, further undermining the credibility of the EU Emissions Trading System (ETS).
Lidia Tamellini, EU Industrial Decarbonization Expert at Carbon Market Watch, criticized the system, stating:
“For two decades, the carbon market has rewarded major polluters instead of holding them accountable. Why are industries like steel and cement receiving more allowances than they actually emit? And why is oil refining, a sector with little decarbonization progress, still benefiting from free permits?”
Innovation Fund: A Missed Opportunity?
The EU’s Innovation Fund, intended to accelerate the green transition, also faces scrutiny. While designed to support breakthrough clean technologies, nearly 40% of its budget between 2020 and 2022—around €2.5 billion—was allocated to carbon capture and storage (CCS) and carbon capture and utilization (CCU) projects. While CCS has a role in reducing unavoidable emissions, critics argue that over-reliance on this technology sidelines other crucial innovations, such as energy efficiency improvements and clean energy expansion.
Moreover, delays in implementing the Carbon Border Adjustment Mechanism (CBAM)—a tool designed to level the playing field for EU manufacturers—could further undermine the Innovation Fund’s effectiveness. If CBAM is postponed by two years, as some policymakers propose, the EU could lose up to €20 billion in funding that should have been used to modernize industries and make them more competitive in the green economy.
“Pushing back CBAM would send the wrong signal at a time when we need urgent climate action,” said Camille Maury, Senior Policy Officer on Industrial Decarbonization at WWF EU. “By 2030, we risk losing an additional €9 billion in carbon revenues to free pollution permits, instead of using it to transform European industries.”
Shifting Funds Toward Real Decarbonization
As Europe works toward achieving its net-zero goals, experts stress the need for a stronger, more targeted approach to funding industrial transformation. Rather than continuing to hand out free pollution permits, stricter environmental conditions should be attached to public funding. Industries that benefit from EU financial support must be required to invest in real decarbonization solutions, create quality jobs, and accelerate the shift to cleaner production methods.
The EU’s carbon market was designed to drive emissions reductions, but current loopholes allow major polluters to operate business as usual. Redirecting ETS revenues toward genuine green solutions—rather than subsidizing pollution—will be key to ensuring Europe’s long-term economic and environmental sustainability.
