In an opinion published on 14 April, the European Court of Auditors (ECA) has highlighted several weaknesses in the Temporary Decarbonisation Fund recently proposed by the European Commission. The Fund is designed to provide financial support for European companies at risk of carbon leakage, while preserving the EU’s decarbonisation efforts. However, in its current form, the Fund’s financial management would not be sound, the auditors warn.
A Temporary Decarbonisation Fund was proposed by the Commission in December 2025 to support EU-based companies in carbon-intensive sectors whose production may be at risk of relocation outside the EU. The Temporary Decarbonisation Fund will provide financial support for the fertiliser, aluminium, and iron and steel sectors until a long-term solution for carbon leakage is found. It will be financed by the sale of Carbon Border Adjustment Mechanism (CBAM) certificates to importers of carbon-intensive goods in 2026 and 2027. Member states – which collect the proceeds from the sale of CBAM certificates – will be required to transfer 25 % of the revenue for these two years to the Fund.
The auditors have made the following main observations about the proposal:
- It is unclear how much new investment in decarbonisation the Fund will actually trigger. The conditions for receiving support from the proposed Fund are similar to those for obtaining the free EU Emissions Trading System (EU ETS) allowances in 2026 and 2027. The Commission has not assessed the impact of the limited number of new conditions on companies’ investments. In addition, as payments from the Fund will be based on historical production, they will not be directly supporting new investments in decarbonisation.
- Not all exemptions from the EU’s financial rules are justified or clear. The Commission has requested three exemptions (derogations) from the EU Financial Regulation. The auditors disagree with one of these requests, as it deviates from fundamental budgetary principles and alternative solutions do exist that are in line with the principle. As regards the exemption concerning the retroactive payment of support for companies, the auditors found that the proposal does not properly reflect the extent to which the exemption will be used.
- The assumptions underlying the proposal are uncertain. The Commission estimates the total revenue of the Fund to be €632 million, while total estimated expenditure is €265 million. This mismatch raises the question of whether the member states’ contribution to the Fund needs to 25 %. Moreover, both revenue and expenditure figures are subject to considerable uncertainty, as the future prices of EU ETS allowances and the sale of CBAM certificates are difficult to predict. As CBAM certificates are a new form of revenue, there is no historical data to guide projections.
- Some of the collected money will not be used for a year. Member states will be required to transfer CBAM revenues in two instalments – one in 2028 and the other in 2029 – but support payments will not begin until 2029. As a result, the Commission will make little use of the estimated €308 million expected in 2028, and the proposal does not specify how these assets will be managed. The auditors suggest that the member states should instead make a single transfer of the collected revenue in 2029.
- Using existing administrative structures is a positive feature. The auditors found that 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 entail a lower administrative burden for beneficiaries, and cost less.
Background information
For the next multiannual budget (2028-2034), the Commission has proposed that 75 % of the revenue from the sale of CBAM certificates should be given the status of an EU own resource. The remaining 25 % will be kept by member states. The proposal for the Council decision on the own resources has not yet been approved by the Council; if it is, it will also need to be ratified by all the member states.
Under EU law, the ECA must be consulted when legislative proposals have an impact on the budget or entail exemptions from budgetary principles. Today’s opinion – as well as others examining the proposals for the 2028-2034 EU budget – is published on the ECA website. It is currently available in English; the other EU languages will follow shortly.