Briefing - Free allocation in the EU emissions trading system - 02-07-2026
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Since the establishment of the European emissions trading system (EU ETS), industrial installations exposed to the risk of carbon leakage have received free emission allowances for part of their greenhouse gas emissions. The EU ETS Directive provides for thiBriefing - Free allocation in the EU emissions trading system - 02-07-2026
Since the establishment of the European emissions trading system (EU ETS), industrial installations exposed to the risk of carbon leakage have received free emission allowances for part of their greenhouse gas emissions. The EU ETS Directive provides for this percentage to be progressively reduced over the years in such a way that the EU ETS still provides a carbon price signal for decarbonisation and protects against the risk of carbon leakage. The EU has adopted a carbon border adjustment mechanism (CBAM) to replace the existing system of free allocation. The CBAM aims to ensure that imported goods are subject to the same carbon costs as those produced within the EU. However, the CBAM is still being phased in, and it does not cover all sectors exposed to the risk of carbon leakage.The European Commission will propose a revision of the EU ETS in July 2026. The revision would re-define the role of the EU ETS post-2030, reinforcing it as an instrument that supports decarbonisation and industrial competitiveness. There are multiple issues at stake, but free allocation is expected to play a pivotal role in the discussion. Beforehand, the adoption of the Benchmark Regulation – the implementing act setting the revised values for free allocation of emission allowances – will establish the amount of free allocation to be granted in 2026-2030 to the sectors and subsectors in the EU ETS that are exposed to the genuine risk of carbon leakage. A broader revision of Directive 2003/87/EC on the EU ETS will begin afterwards, with a Commission proposal looking, among other things, at the role of carbon leakage in the EU ETS post-2030. This briefing provides an overview of the existing legislative framework and concepts related to free allocation in the existing EU ETS, and presents the views expressed by some Member States and stakeholders. Source : © European Union, 2026 - EP Read more














