The European Union (EU) is considering a review of the free emission allowances granted under the EU Emissions Trading System (EU ETS), the region’s primary tool for reducing greenhouse gas emissions in industrial sectors.
According to internal documents cited by news agencies, the European Commission is assessing different scenarios to adjust the allocation regime, which currently grants a portion of emission allowances free of charge to carbon-intensive industries. This policy was originally designed to prevent “carbon leakage” and safeguard the competitiveness of European companies against international competitors operating under less stringent climate regulations.
Among the options under discussion are:
Gradually phasing out free allowances, requiring companies to purchase all their emission rights over a transition period extending to 2034.
Maintaining free allowances but linking them to concrete investments in low-carbon technologies.
Preserving the current framework, with technical adjustments and minor updates to allocation criteria.
This review is part of the regular update process of the EU ETS, aimed at ensuring that the mechanism remains aligned with the EU’s 2030 climate commitments and its medium- and long-term emission reduction targets.
A formal reform proposal is expected in the third quarter of 2026, after which it will enter discussions among Member States and the European Parliament.
Any potential adjustment to the European carbon market will be closely monitored by governments, companies, and international markets, given that the EU ETS remains one of the largest and most sophisticated carbon pricing systems worldwide.