At a glance
- The Commission's July review of the ETS had proposed adding 88 million free allowances between 2026 and 2030 for sectors covered by the scheme's heat and fuel benchmarks.
- For fund selectors, the larger item sits elsewhere in that July review.
- Under the ETS, companies must surrender allowances for their emissions.
Lawmakers in the European Parliament and EU member states agreed to add free carbon allowances worth about €10 billion to the EU emissions trading system, a late-night deal aimed at energy-intensive sectors exposed to carbon leakage, meaning production shifting to countries with weaker climate policy.
The Commission's July review of the ETS had proposed adding 88 million free allowances between 2026 and 2030 for sectors covered by the scheme's heat and fuel benchmarks. Those benchmarks allocate allowances by energy consumption and set free allocation for products and processes that no product-specific benchmark reaches. The two figures are not directly comparable: the deal was announced as a value in euros, the July proposal as a volume of allowances.
For fund selectors, the larger item sits elsewhere in that July review. The Commission proposed slowing the pace of emissions reductions mandated under the carbon pricing system, extending free allocation for several years and routing more ETS capital into industrial decarbonization. Funds that hold EU allowances, or that price transition risk off the carbon price, are tracking a cap whose decline rate is under revision.
Under the ETS, companies must surrender allowances for their emissions. A share is given out free, sized by benchmarks that reflect the most efficient facilities in each sector. A company emitting less than its allocation can sell the surplus; one emitting more must buy the difference. The scheme covers electricity and heat generation, oil refineries, steel, cement, paper, chemicals and commercial aviation. Since its 2005 launch it has generated more than €270 billion in revenue, and the Commission credits it as a key driver in cutting emissions in covered sectors by 50%.
Several member states had asked the Commission to review the scheme as energy prices rose under geopolitical strains including the Russia-Ukraine and Iran wars. The ETS file is also moving alongside the Commission's consideration of a one-year delay to methane rules on imported oil and gas, as ESG Capital Daily previously reported.
How the roughly €10 billion agreed this week maps onto the July proposal's 88 million allowances for 2026-2030 will decide how much of the relief reaches compliance costs before 2030, and how much of the heat and fuel benchmark bill stays with producers who must buy permits on the market.
Reported by the Policy & Disclosure desk from ESG Today. Published . Corrections