The European Court of Auditors (ECA) has highlighted several weaknesses in the Temporary Decarbonization Fund, which is designed to provide financial support to European companies at risk of carbon leakage, without, however, undermining the EU’s decarbonization efforts. In an opinion issued in April, the auditors warn that, in its current form, the Fund’s financial management would not be successful.
In December 2025, the Commission proposed the creation of a Temporary Decarbonization Fund to support EU-based companies in carbon-intensive sectors whose production may be at risk of being relocated outside the EU. The Temporary Decarbonization Fund will provide financial support to the fertilizer, aluminum, iron, and steel sectors until a long-term solution to carbon leakage is found. It will be financed through the sale of Carbon Border Adjustment Mechanism (CBAM) allowances to importers of high-carbon-intensity goods in 2026 and 2027. Member States that collect revenue from the sale of CBEC certificates will be required to transfer 25% of the revenue for those two years to the Fund.
The auditors make the following key findings regarding the proposal:
- It is unclear to what extent the Fund will actually lead to new investments in decarbonization. The conditions for receiving support from the proposed Fund are similar to those for receiving free allowances under the EU Emissions Trading Scheme (EU ETS) in 2026 and 2027. The Commission has not assessed the impact of the small number of new conditions on companies’ investments. Furthermore, since payments from the Fund will be based on past production, they will not directly support new investments in decarbonization.
- Not all exceptions to EU financial rules are justified or clear. The Commission has requested three exceptions (derogations) from the EU Financial Regulation. The auditors do not agree with one of these requests, as it deviates from fundamental budgetary principles, while alternative solutions exist that are in line with the principle. Regarding the derogation for retroactive aid to companies, the auditors found that the proposal does not clearly indicate the extent to which it will be used.
- The assumptions on which the proposal is based are uncertain. The Commission estimates the Fund’s future total revenue at €632 million and total projected expenditure at €265 million. This discrepancy raises the question of whether Member States’ contributions to the Fund should reach 25%. Furthermore, there is significant uncertainty regarding the data on both revenues and expenditures, as it is difficult to predict future prices for EU ETS allowances and the sale of CDM certificates. Since IEAE certificates are a new form of revenue, there is no historical data on which to base forecasts.
- Part of the funds collected will not be used for a period of one year. Member States will be required to transfer the ICESF revenues in two tranches—in 2028 and 2029—but support payments will not begin until 2029. As a result, the Commission will not make sufficient use of the €308 million budgeted and expected in 2028, and the proposal does not specify how these assets will be managed. The auditors suggest instead that Member States make a single transfer of the collected revenues in 2029.
- The use of existing administrative structures is a positive feature. According to the auditors, although the Fund is entirely new, it builds on existing administrative structures and reporting requirements for the free allocation of ETS allowances. This approach should result in a lower administrative burden for beneficiaries and lower costs.
General information
For the next multiannual budget (2028–2034) The Commission has proposed that 75% of the revenue from the sale of allowances under the Carbon Border Adjustment Mechanism (CBAM) be designated as an EU own resource. The remaining 25% will be retained by the Member States. The proposal for a Council decision on own resources has not yet been approved by the Council. If approved, it will also need to be ratified by all Member States.
Under EU law, when legislative proposals have budgetary implications or result in exceptions to budgetary principles, the opinion of the ECA must be sought. Today’s opinion, along with others addressing the proposals for the EU budget for the period 2028–2034, has been published on the ECA’s website. It is currently available in English, with translations into the other EU languages to follow shortly.
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