The European Union has agreed to increase free carbon allowances for energy-intensive industries from 2026 to 2030, aiming to prevent production shifts to regions with weaker climate rules.

Council Backs 121 Million Extra Allowances

EU member states, meeting at ambassador level in the Council of the EU, adopted a position to raise the free allocation of emission allowances under the bloc’s Emissions Trading System (ETS). The move makes around 121 million additional permits available for sectors covered by heat and fuel benchmarks, which include many manufacturing and processing activities.

About 88 million allowances will come from an existing pool designated for free allocation, while a further 33 million will be drawn from permits that had remained unassigned because some installations did not meet earlier ETS conditions. The European Commission estimates the 88 million allowances alone represent roughly €6 billion in cost savings for affected industries over the period.

Carbon Leakage And Competitiveness Concerns

The revision responds to concerns that tighter ETS benchmarks could raise costs for industries exposed to international competition, increasing the risk of “carbon leakage” — the relocation of production and emissions outside the EU. The measure is part of a broader reform of the EU’s carbon market, which is being adjusted to align with the bloc’s 2040 and 2050 climate targets while maintaining industrial competitiveness.

Darragh O’Brien, Ireland’s Minister for Climate, Energy and the Environment, said the agreement helps safeguard jobs and keep EU industry competitive during a “crucial transition period” as the bloc works toward its climate goals. The Irish presidency, which holds the rotating Council chair, said it aims for swift negotiations with the European Parliament once MEPs set their position, so the revised benchmarks can be implemented in time.

Next Steps In EU Carbon Market Reform

The Commission first presented the benchmark revision in July 2026, after EU leaders noted in June the need for a separate proposal to address competitiveness issues linked to updated free-allowance rules for 2026–2030. Trilogue talks between the Council, Parliament and Commission will determine the final text, which will shape how free allowances interact with the EU’s Carbon Border Adjustment Mechanism (CBAM), designed to mirror the phase-out of free permits with border carbon charges.