EU leak shows 17% tighter ETS free-allocation benchmarks, Italy wants revision scrapped

EU leak shows 17% tighter ETS free-allocation benchmarks, Italy wants revision scrapped Lower free allocation would push industry to buy more permits, but analysts warn ETS reforms still risk renewed oversupply through 2040. The European Commission is weighing an average cut of around 17% to the benchmarks that govern free carbon-allowance allocation to industry, according to a leaked draft seen by Montel on Thursday (2026-05-21).¹ Iron casting faces the steepest reduction, its benchmark proposed to fall 42% to 0.164 allowances per tonne for 2026-2030 from 0.282 over 2021-2025, while the coke benchmark would drop 34% to 0.143 per tonne.¹ The benchmark sets how many free allowances each tonne of output earns, so a lower figure leaves more of an installation's emissions to be covered by purchased permits.¹ Less free allocation forces more compliance buying onto industrial emitters and, in principle, supports the EUA price, and the leaked numbers show the Commission ready to impose deeper cuts on sectors long cushioned by free permits.¹ Italy wants the revision dropped entirely. It has urged the EU to scrap the planned benchmark overhaul, warning that pressing ahead now would raise compliance costs for energy-intensive industries and weaken European industrial competitiveness.² Industry pressure on Brussels reaches beyond carbon. Gas exporters have asked the EU to delay enforcement of its methane-emission rules until at least 2028, Oilprice reported on Wednesday (2026-05-20), part of a wider push by energy producers to soften the bloc's compliance burden.³ The political resistance is not the only weight on the market. A study from the Oeko Institute, published on Tuesday (2026-05-19), warned that proposed ETS reforms risk leaving the system in persistent oversupply until 2040, lifting allowance availability well beyond what the bloc needs to meet its decarbonisation targets.⁴ An EU ETS adjustment under consideration could cut carbon prices by about 13% over the next two years, Veyt senior analyst Tim Blees said on Wednesday (2026-03-25).⁵ The ICE EUA December contract was quoted at €76.10 at Thursday's settle (2026-06-18), leaving Blees's projected decline as a forecast still to be confirmed. [live_prices]⁵ Carbon Pulse's daily briefing flagged recent volatility across carbon markets in early June (2026-06-02), a reminder that allowance prices are swinging on policy headlines as much as on fundamentals.⁶ The two forces pull against each other. Less free allocation tightens supply and argues for firmer prices, yet the Oeko study and Veyt's forecast both point to a market at risk of being over-supplied.^4,5 If the final benchmarks settle near the leaked 17% average instead of a deeper overhaul, the net tightening may prove modest.¹ What traders are waiting on is the Commission's formal proposal, due in the coming months, and whether other industrial heavyweights line up behind Italy.^2,1 Until that lands, the EUA December contract holds near €76, with the next leg dependent on how much oversupply risk Brussels is willing to tolerate. [live_prices]⁴