Expert analysis
The EC unveiled its long-awaited EU ETS reform package on Friday.
The overall message is clear: the EU ETS is here to stay, but it will become more flexible, while the EU remains committed to its 90% economy-wide emissions reduction target by 2040.
The benchmark Dec-26 EUA contract fell to EUR 76.92/t ahead of the announcement before rallying to EUR 80.98/t once the details were released, stabilising around EUR 79.70/t. Trading activity also surged, with almost 8 million EUAs changing hands within less than an hour.
Key proposals:
Slower LRF
• 2031–2035: 4.4% ➝ 3.7%
• 2036–2040: 1.7%
This would give European industry more time to decarbonise while also increasing future allowance supply.
Negotiation positions:
• Current: 4.4%
• EPP proposal: 3.4%
• Several Member States: 3%
• Germany and Sweden: 4.4%
MSR
The annual intake rate would fall:
➡️ 24% ➝ 12% between 2031 and 2040
• MSR intake and release thresholds would be reduced by 4% annually from 2029
• Surplus allowances above 400 million EUAs would no longer be automatically cancelled but remain in the MSR under an earlier Commission proposal.
EUR 30 billion Investment Booster
• 400 million EUAs
Carbon removals integrated into the ETS
The Commission proposes allowing up to 250 million tonnes of permanent domestic carbon removals within the EU ETS.
New conditions for free allocation
From 2031:
• Companies must publish decarbonisation plans.
• 80% of free allocation would depend on these plans.
• The remaining 20% would only be granted for verified investments.
Slower phase-out of free allocation under CBAM
Instead of ending in 2034:
• 15% of free allocation would remain between 2034 and 2037
• Full phase-out would occur in 2038.
International carbon credits
From 2036:
• Up to 260 million tonnes of high-quality international carbon credits could enter the system indirectly. Companies would not be allowed to purchase these credits directly; they would only enter the market through an EU-managed mechanism.
More free allowances for industry
Benchmark revisions could provide EUR 6 billion of additional free allowances for:
• Chemicals
• Ceramics
• Metals
• District heating
Market reaction
The market took comfort from the fact that the Commission remains committed to its long-term climate ambitions.
Price rebound was widely viewed as a classic “relief rally”, with investors covering short positions after the long-awaited details removed a significant source of uncertainty.
What does this mean?
In the short term, the initial market reaction was bullish, as the reform package proved less dovish than many participants had anticipated.
In the medium term, the package increases the potential supply of allowances.
EU has not stepped back from its climate ambitions.
The proposals are not yet final. They must still be negotiated and approved by both the European Parliament and the Council before becoming law.
Source: Montel Analytics
Analysis written by: Tóth Eszter Lilla
20.07.2026