NGOs Push to End EU Biomass Exemption as EUA Supply Concerns Mount
Carbon Pulse reported NGOs challenging the EU's biomass zero-rating on Wednesday, adding a demand-side variable to a market already pressured by supply-loosening reform proposals.
NGOs challenged the EU's treatment of biomass combustion as carbon-neutral under the Emissions Trading System on Wednesday (2026-09-23), Carbon Pulse reported, adding pressure on a market already absorbing a string of supply-loosening legislative proposals. ICE EUA Dec-rolling was at €86.38 per tonne of CO2 as of Wednesday morning (2026-09-23).5
Biomass is currently zero-rated in the EU ETS, meaning installations that burn it for power or heat do not surrender allowances. Stripping that exemption would draw a significant volume of previously uncovered emissions inside the cap, increasing demand for EUAs. But the NGO challenge arrives while the supply side of the market is moving the other way.5
The European Commission tabled a formal revision to the ETS framework on 17 July 2026. The proposal would slow the annual rate of cap reduction sharply after 2030, cutting the linear reduction factor to 3.7% for 2031-2035 and further to 1.7% for 2036-2040 — well below the current 4.3%, which was itself due to step up to 4.4% between 2028 and 2030, according to JD Supra.3
Analysts responded quickly. Reuters reported on 31 July 2026 that forecasters had cut their EUA price outlooks for both 2026 and 2027 following the Commission's proposals.4
The supply concern predates the July proposal. Carbon Market Watch said on Monday (2026-05-18) that a planned relaxation of the ETS cap trajectory could inject the equivalent of three additional years of allowance supply into the market, Montel reported.1
Free-allocation benchmarks add another layer. A committee of national governments reviewing industrial free-allocation benchmarks through 2030 is likely to deliver an outcome that loosens the market balance and pushes prices lower, analysts told Montel on Tuesday (2026-06-16).2
The Commission's July revision also creates an Industrial Decarbonisation Bank with an indicative funding envelope of around €100 billion. The IDB is expected to draw roughly €30 billion from the sale of 400 million EUAs, according to JD Supra, a volume that itself expands allowance supply. Member States would simultaneously be required to channel half of their national ETS revenues toward decarbonising investments.3
The slower linear reduction factor takes effect only from 2031. Physical supply over the near term follows the existing trajectory. Yet markets price structural shifts ahead of their formal start dates, and the cut to analyst forecasts on 31 July 2026 shows the July revision has already filtered into price expectations.3,4
The biomass question works differently. The zero-rating of biogenic emissions has been contested on scientific grounds for years, with critics arguing that carbon released during combustion is not genuinely offset by forest regrowth on timescales relevant to the EU's climate targets. Whether the NGO challenge escalates into the ongoing Phase 5 and 6 revision process is unclear; the source material does not identify the groups involved or any regulatory timeline for a response.5
The EC proposal still requires further secondary legislation before its principal elements become operational, JD Supra noted. With both outcomes tethered to the same legislative process, the first concrete test of the NGO challenge's reach is whether revised ETS draft text addresses biogenic emissions at all.3