Research Report · February 2026

EU ETS Reform 2026
Free Allocation at an Inflection Point

The 2026 benchmark update, combined with the CBAM phase-in, marks a structural shift for EU industry. Based on our installation-level modelling, free allocation could decline from ~517m EUAs in 2025 to ~282m EUAs by 2030 — implying up to ~€103bn in reduced implicit subsidy value across sectors over 2026–2030.

517m
EUAs free allocation in 2025
282m
EUAs projected by 2030
€103bn
Reduced implicit subsidy value 2026–2030

What this means in practice

  • Less free allocation, higher uncovered emissions across energy-intensive sectors
  • Rising cash compliance costs driving margin dispersion within sectors
  • Increasing intra-sector margin dispersion between efficient and inefficient operators
  • Carbon efficiency and hedge positioning becoming core valuation drivers

In our view, compliance carbon is transitioning from a policy variable to a primary earnings driver for energy-intensive sectors.

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