Free CO2 allowances 2026-2030: lower allocation and higher costs for industry

Key data

European industrial installations will receive fewer CO2 emission allowances for free from 2026 onwards. Commission Implementing Regulation (EU) 2026/1412, published on 29 June 2026 and in force since 26 June, sets the revised values of the benchmarks (reference parameters) that determine how many free allowances each installation receives under the EU ETS (European Union Emissions Trading System) during the five-year period 2026-2030.

The direct consequence is clear: stricter benchmarks = fewer free allowances = more purchases on the carbon market = higher operating costs. For energy-intensive sectors competing internationally, this is not a minor adjustment: it directly affects the bottom line.

What does this regulation establish?

The EU ETS requires industrial installations to surrender emission allowances equivalent to their actual CO2 emissions. To protect the competitiveness of sectors at risk of "carbon leakage" (which relocate production outside the EU to avoid costs), the system allocates part of these allowances for free.

The number of free allowances is not arbitrary: it is calculated by multiplying the installation's production by a benchmark, that is, a reference value that represents the efficiency of the cleanest installations in the sector. The lower the benchmark, the fewer free allowances each ton produced receives.

Article 10a, paragraph 2, of Directive 2003/87/EC requires these benchmarks to be reviewed periodically based on technological progress and sector emission reductions. This Regulation applies that review for the 2026-2030 period, updating the values from the previous period (2021-2025).

Economic and operational impact

The economic impact of this Regulation materializes directly: each emission allowance that ceases to be allocated for free must be purchased on the European carbon market. The price of CO2 in the EU ETS has historically fluctuated between 50 and 100 euros per ton, which makes each reduction in free allocation a real and quantifiable cost.

Companies with installations less efficient than the reference benchmark are the most affected: not only do they receive fewer free allowances, but they also emit more per unit produced, so their need to purchase on the market is twofold.

Conversely, installations that already operate below the benchmark (i.e., more efficient than the sector average) may even generate a surplus of free allowances that they can sell on the market, becoming an additional source of income.

The sectors with the greatest risk of carbon leakage—steel, cement, chemicals, refining and paper—are particularly exposed because they compete with producers from third countries that do not bear these costs.

Who does it affect?

• Steel sector: Iron and steel production installations included in the EU ETS.
• Cement sector: Clinker and cement production plants.
• Refining sector: Oil and gas refineries.
• Chemical sector: Energy-intensive basic chemical production installations.
• Paper sector: Pulp, paper and cardboard production plants.
• Other energy-intensive sectors included in the scope of the EU ETS with current free allocation.
• CFOs and financial directors of industrial groups with installations in the EU who must budget carbon compliance costs for 2026-2030.
• Sustainability and environmental managers who manage the company's carbon position.

Practical example

Imagine a cement plant that produces 1,000,000 tons of clinker per year. In the 2021-2025 period, it received, for example, 800,000 free allowances annually based on the applicable benchmark. With the new revised benchmarks for 2026-2030, which are stricter, that same plant could receive, say, 720,000 free allowances, that is, 80,000 fewer allowances per year.

If the market price of CO2 is 70 euros per ton, those 80,000 additional allowances that must be purchased represent an additional cost of 5,600,000 euros annually, or 28,000,000 euros over the 2026-2030 five-year period. This is the type of impact that companies must quantify by comparing their actual production efficiency with the new benchmark values published in Regulation 2026/1412.

Note: The figures in this example are illustrative to dimension the impact. The exact benchmark values for each product are found in the annex of Commission Implementing Regulation (EU) 2026/1412.

What should companies do now?

1. Download and review the new benchmark values from Commission Implementing Regulation (EU) 2026/1412 for each product or process at your installation. These are the values that will determine your free allocation 2026-2030.
2. Compare the new benchmarks with your installation's actual production efficiency. If your installation emits more CO2 per unit produced than the benchmark, you will receive fewer free allowances than you need and will have to purchase the difference.
3. Quantify the compliance gap for the 2026-2030 five-year period. Calculate how many additional allowances you will need to purchase each year and at what estimated cost based on the current carbon market price.
4. Update the compliance cost budget to reflect the higher spending on emission allowances. This impact must be reflected in your 2026-2030 financial plans.
5. Review your decarbonization plan. Stricter benchmarks make it more profitable to invest in energy efficiency and emission reductions: each ton of CO2 avoided is an allowance you don't have to buy.
6. Evaluate hedging options on the carbon market (early allowance purchases, hedging strategies) to mitigate CO2 price volatility during the 2026-2030 period.

Official source

View complete regulation at official source

Disclaimer: This article is for informational purposes only and does not constitute legal advice. For specific decisions, consult a qualified professional. Source: https://eur-lex.europa.eu/./legal-content/AUTO/?uri=CELEX:32026R1412