Glossary
Carbon leakage
In the EU Emissions Trading System (EU ETS), the move of production, and its CO₂ emissions, to countries with weaker climate rules, as the Commission describes it. Sectors the law deems at risk of carbon leakage get more free allowances.
- Legal source
- ETS Directive, Article 10b(1) ↗
- Who it applies to
- Operators of installations in sectors and subsectors on the carbon leakage list, which covers 2021 to 2030. The Carbon Border Adjustment Mechanism (CBAM) addresses the same risk for imports of the goods it covers.
- Example
- Manufacture of cement, NACE code 2351, is on the carbon leakage list. A cement plant's sub-installations serving that sector get a carbon leakage factor of 1, so 100% of the amount their benchmarks give until 2030, before other factors such as the CBAM factor.
- Also known as
- risk of carbon leakage, carbon leakage risk
Commission guidance, not law: the Commission describes carbon leakage as the transfer of CO₂ emissions from one country to another, when companies relocate their production to countries with weaker emission constraints because of strict climate policies. This can contribute to an increase in global greenhouse gas emissions. The definitions in Article 3 of the ETS Directive don't include the term; Article 10b sets which sectors are deemed to be at risk.
A sector or subsector is deemed to be at risk if its intensity of trade with non-EU countries, multiplied by its emission intensity, exceeds 0.2. Trade intensity is the value of exports to and imports from non-EU countries, divided by the market size in the European Economic Area; emission intensity is kilograms of CO₂ per euro of gross value added.
The sectors deemed at risk for 2021 to 2030 are listed in Delegated Decision (EU) 2019/708, by their NACE code, the EU's statistical classification of economic activities, and some subsectors by their Prodcom code, the classification of goods used for statistics on industrial production in the EU. They get
The Carbon Border Adjustment Mechanism (CBAM) is to replace the EU ETS measures against the risk of carbon leakage, by reflecting how far EU ETS allowances are allocated free of charge. Our CBAM hub covers it.
Our free allocation explainer lists every sector on the carbon leakage list and shows what the list means for an installation.
Regulations
EU Emissions Trading System (EU ETS)
Implementing Decision (EU) 2026/1862 set the cross-sectoral correction factor for free allocation at 100% for each year from 2026 to 2030
Used in
EU ETS review 2026: what the Commission's proposal would change, for whom and from when
What the Commission's July 2026 EU ETS review proposal would change for installations, ships, flights, waste incinerators and EU countries, and from when.
EU ETS free allocation: benchmarks, the carbon leakage list and how free allowances are cut
How EU ETS free allowances are worked out for 2026-2030: benchmarks, the carbon leakage list, the 20% conditions, the CBAM factor and two pending proposals.
EU CBAM downstream products: what the proposed extension covers, for whom and from when
The Commission proposes adding downstream steel and aluminium goods to EU CBAM from 1 January 2028. Check the CN codes, who it affects and where it stands.
EU CBAM simplification: what Regulation (EU) 2025/2083 changed
EU CBAM simplification: a 50-tonne yearly threshold replaced the €150 exemption, the deadline moved to 30 September and the quarterly holding fell to 50%.