We have published our new study, in collaboration with EPICO KilmaInnovation, that examines how the upcoming EU Emissions Trading System (ETS) reform can offer protection to companies that invested early in industrial decarbonisation.
Our report examines what policy measures are needed to protect these companies where subsequent changes to the EU ETS weaken the original investment case, without insulating firms from normal commercial risks or weakening the ETS carbon-price signal.
The 2026 EU ETS review changes the investment environment for European industry. A more flexible post-2030 trajectory may reduce expected allowance scarcity and the expected carbon-price path relative to the framework under which some companies made early decarbonisation investments. Early movers have already committed capital, while later movers retain the option to wait. This matters beyond existing projects: more than 90% of announced clean industrial projects in Europe have not yet reached a Final Investment Decision, so how the EU treats today's frontrunners can shape the incentives for the next generation of investments.
A targeted and transitional approach
Our central conclusion is that frontrunner protection should be targeted, temporary and focused on the specific disadvantage created by a changing policy framework. It should provide a bridge for existing investments rather than permanent preferential treatment for early movers.
We propose two alternative routes for identifying frontrunners: a performance route for installations with strong realised emissions performance, and a project route for early, material and transformative decarbonisation investments whose full impact may not yet be reflected in benchmark performance. Frontrunner status should not automatically create an entitlement to support; a separate assessment should determine whether a material residual economic disadvantage remains.
The study recommends a layered policy package:
Conditionality relief as a baseline "do no harm" safeguard: Firms that have already undertaken qualifying decarbonisation investments should not be required to invest again simply to retain baseline free allocation.
Temporary CCfD-type support for existing frontrunners where a material residual gap remains: Support should target the forward-looking carbon-price or operating-cost disadvantage, be linked to continued low-carbon production and decline as the gap closes.
Enhanced free allocation as a complement, not a substitute, for targeted financial support: It can reward strong performance, but its value also falls when EUA prices fall and should be reflected when calculating any remaining support need.
Competitive CCfDs and other ex-ante instruments for future projects: Once the Industrial Decarbonisation Bank framework is operational, relevant risks should increasingly be addressed before FID, with projects competing for the support required to bring investment forward.
Lead-market measures sit alongside this framework by strengthening demand and revenues for low-carbon products. They can improve project economics and reduce required CCfD support,but are a broader demand-side policy rather than a dedicated compensation mechanism for early movers.
Figure 1 A targeted and transitional framework for frontrunner protection
The objective is not to protect individual investments from normal commercial risks, but to preserve credible incentives for firms to invest early. The framework therefore combines targeted, temporary protection for qualifying existing investments with a transition towards more predictable ex ante support for future projects.
Read the full study here: Protecting Industrial Frontrunners in the EU ETS
Author
Senior Principal
Principal
07 October 2026
