EU Proposes ETS Reform Granting €4 Billion in Extra Carbon Allowances to Industry

The European Commission proposed updates to the EU Emissions Trading System (ETS) on May 12, 2026, including measures expected to provide around €4 billion in additional free carbon allowances to industrial companies between 2026 and 2030. The proposal is aimed at balancing the EU’s climate ambitions with growing concerns over industrial competitiveness and rising energy costs.

The ETS is the European Union’s flagship carbon pricing mechanism, requiring high-emission sectors such as steel, cement, chemicals, aviation, and energy producers to pay for greenhouse gas emissions. Under the proposed update, industries would continue receiving free allocations covering roughly 75% of their emissions on average, helping companies manage transition costs while encouraging emissions reductions.

A key element of the reform is the extension of free allocations covering indirect emissions from electricity use across 14 industrial product categories. According to the Commission, this change would incentivise industrial electrification and cleaner manufacturing processes while easing financial pressure on European industries competing globally.

European Commissioner for Climate Action Wopke Hoekstra said the updated benchmarks are intended to strengthen investment in clean technologies while maintaining the effectiveness of the ETS as a decarbonisation tool. The proposal also follows commitments made earlier this year by European Commission President Ursula von der Leyen to revise aspects of the carbon market in response to industry concerns over energy prices and market volatility.

Adding €4 billion of extra ETS allowances is a meaningful loosening that changes both compliance economics and long-term carbon-price trajectory expectations, and it cascades into CBAM pricing, hedging and industrial-decarbonisation investment cases. Our climate-action and market-intelligence teams help clients evaluate what ETS recalibration means for their carbon-cost planning and disclosure narrative.