EU governments and the European Parliament have agreed in principle to increase the number of free carbon allowances available to some energy-intensive industries under the EU’s emissions trading system (ETS) between 2026 and 2030.
The ETS is the EU’s carbon market, where companies must hold one allowance for every tonne of CO2 they emit, and some sectors receive allowances for free, the Council of the EU said in a statement on Thursday night.
Under the provisional deal, free allocations will be increased for sectors covered by the ETS “heat and fuel” benchmarks, which are used to calculate free allowances for industrial installations based on their energy consumption.
A total “safety cushion” of roughly 121 million free allowances would be provided for energy-intensive sectors considered at risk of carbon leakage — when production moves to countries with weaker climate rules.
The agreement builds on a European Commission proposal to make around 88 million allowances available under existing ETS rules, and adds a further 28 million allowances that were previously not allocated because some installations did not meet ETS conditions such as energy efficiency audits or climate neutrality plans.
Darragh O’Brien, Ireland’s Minister for Climate, Energy and the Environment, said the agreement would “swiftly increase free allowances” for energy-intensive sectors while providing “predictability” for industry.
Targeted support and next steps
The deal also sets aside 5 million allowances between 2026 and 2030 for “highly exposed” energy-intensive sectors, with any unused allowances to be directed to investments through the Modernisation Fund and innovation through the Innovation Fund, the Council said.
The provisional agreement must still be endorsed by both the Council and the European Parliament before it can be formally adopted following a legal and linguistic review.
The Council explained that the European Commission would then adopt implementing rules on how the heat and fuel benchmarks are calculated.
The revision follows concerns raised by industry and member states after an update to the ETS heat and fuel benchmarks for 2026 to 2030 reduced the level of free allocation.
