EU Member States Back 121 Million Extra Free ETS Permits for Industry
The agreement expands free industrial carbon allocation by 121 million permits, compounding benchmark revisions and investment fund proposals accumulated since April (2026-04-01).
EU member states on Wednesday (2026-09-16) backed 121 million additional free allowances for industry under the EU Emissions Trading System, Montel reported, accelerating a policy shift that has been building since April (2026-04-01) toward shielding heavy emitters from full carbon cost exposure.8
The volume adds to what is already a substantial free allocation base. The EU ETS distributes roughly 43% of all permits at no cost, with the remainder sold at auction — auctions that generated approximately €43bn in revenue in 2025, Carbon Brief reported. The system covers around 40% of the bloc's total greenhouse gas emissions across aviation, heavy industry, and power. Adding 121 million free allowances shrinks the auction pool, reduces state revenues, and cuts the cost burden facing covered sectors.7,1
Wednesday's (2026-09-16) decision sits atop two months of overlapping Commission proposals on industrial carbon costs. On Friday (2026-07-17), the Commission proposed revisions to ETS production benchmarks for 2026-2030 that it estimated would deliver an extra EUR 6bn to industry, with heating sector benchmarks among those targeted, Montel reported.6
Ten days before that, on Wednesday (2026-07-08), an EU official told Montel that the Commission intended to distribute as many as 400 million allowances from a proposed ETS "investment booster" fund directly to eligible companies between 2027 and 2029. The aim was to allow firms to hold and use allowances as needed, rather than selling into the market to raise capital.3
Free allocation was built into the ETS to prevent carbon leakage — the risk that energy-intensive producers relocate to countries with lower carbon costs, shifting emissions rather than cutting them. That rationale has firm political support. But the Commission's April (2026-04-01) emergency ETS amendment, framed at the time by Politico as the first in a series of planned adjustments, has been followed by three significant supply-expansion measures in five months, a pace that goes beyond the standard leakage-prevention argument.4,1
ETS2 is adding a second political current. On Thursday (2026-07-16), Edie reported that ten member states had raised formal objections to the proposed ETS2 regime, which would extend carbon pricing to transport and heating fuels and risk raising household energy bills. The scheme is designed to cut emissions in its covered sectors by 42% by 2030 against 2005 levels. Member state resistance to ETS2's household cost implications reinforces the same political pressure driving expansion of free permits under ETS1: carbon cost exposure for households and industry alike is being treated as something the allocation framework should absorb.5
The EU parliament's largest group was examining a possible extension of free ETS permits to power producers as of Monday (2026-06-29), Montel reported. Power generation is not currently covered by free allocation. If that deliberation advances, it would open a new category of exempt sectors in a market where successive supply expansions have already shifted the burden away from the price mechanism.2
The investment booster fund is scheduled to begin distributing allowances in 2027, formally capped at 400 million units. That ceiling, and the parliament's ongoing deliberations over power sector allocation, are the next formal constraints on free supply — and the next tests of how far the expansion runs before it conflicts with the Commission's own decarbonisation targets.3,2