MEPs Target Mid-December Deal on EU Carbon Market Reform
European Parliament members are racing to agree on ETS changes by year-end after a Commission proposal analysts broadly view as bearish for allowance prices.
European Parliament members are targeting a mid-December agreement on EU Emissions Trading System reforms, Montel reported, compressing what analysts had already described as a fraught legislative calendar into a year-end sprint. The ICE EUA Dec-rolling contract stood at €85.51 per tonne as of Thursday (2026-09-10), having bounced back from a sharp sell-off triggered when the Commission first unveiled its reform outline in July.4,6
The Commission tabled the full Proposal on July 17 (2026-07-17), targeting Phases 5 and 6 of the ETS, covering 2031 to 2040. The headline structural change is a slowdown in the pace at which the cap on allowances tightens. The existing Linear Reduction Factor of 4.3%, due to rise to 4.4% from 2028 to 2030, would fall to 3.7% from 2031 to 2035, then drop to 1.7% from 2036 to 2040, according to JD Supra's analysis of the Proposal published in August (2026-08-11).6
Fewer allowances withdrawn per year means more supply over the longer horizon. Analysts told Montel in the week of July 13 (2026-07-14) that the package would prove "slightly bearish" overall when published. The market moved accordingly.3
On July 16 (2026-07-16), the day before the formal unveiling, the ICE EUA Dec 26 contract fell more than 3% to below EUR 80 per tonne in afternoon trading, Montel reported. The contract has since recovered to €85.51, suggesting the bearish reform read is at least partially priced, though the legislative road ahead remains long and the text unresolved.4
The Commission also proposed an Industrial Decarbonisation Bank with an indicated funding envelope of approximately €100 billion, to be financed in part through carbon market revenues. EEX's chief executive separately confirmed to Carbon Pulse that the exchange will stop auctioning allowances under the REPowerEU programme once the €20 billion fundraising target for replacing Russian fossil fuels is reached, removing one discrete supply pressure once that ceiling is hit.6,2
Critics argue the LRF cuts work against the IDB's stated purpose. Andrea Spignoli, sustainable markets policy manager at Bellona Europa, told Carbon Brief in July (2026-07-20) that the plan risks "weakening green investments," adding that "more efforts will be needed" elsewhere to compensate. Escrig, cited in the same Carbon Brief analysis, described the Commission as "strengthening support for industrial investment while weakening parts of the framework meant to drive it." The LRF reduction produces a looser cap regardless of how well the bank's industrial lending eventually performs.5
Even if MEPs reach agreement in December (2026-12), implementation will take time. Many elements of the Proposal require further secondary legislation before they become operational, JD Supra noted, meaning a political deal in the fourth quarter does not translate into immediate market clarity on supply volumes.6
Analysts had been skeptical of the schedule well before the December target emerged. On May 21 (2026-05-21), analysts told Montel that a Q1 2027 finalisation timeline already looked "ambitious" and "extremely challenging," with the US-Israeli conflict with Iran cited among the geopolitical factors likely to crowd legislative bandwidth in Brussels. A mid-December deal would actually precede that Q1 2027 window, suggesting MEPs are pushing a faster track than the market had expected — or that legislative optimism is running ahead of committee-level reality.1
The EUA price at €85.51 sits above the EUR 80 level that cracked in July, but that recovery came without any visible revision to the reform's fundamental bearish read. Any parliamentary amendment restoring a steeper LRF, above 4% from 2031 onward, would flip the supply trajectory and support a more constructive price view. The December committee calendar is the next concrete signal.4,6