Chemical Industry Pushes Back on EC Plan to Cut Free Carbon Allocations by 17%
A leaked European Commission draft proposes tightening ETS benchmarks by an average 17%, with iron casting facing a 42% cut — threatening a carbon subsidy worth an estimated €200 billion.
The European Commission moved on Tuesday (2026-06-30) to clamp down on steel imports, slashing the volume of tariff-free quotas by 47% to 18.3 million metric tonnes and imposing a new 50% duty on steel products.6 For European energy-intensive industry, the announcement arrived alongside a second pressure: a leaked EC draft reveals plans to tighten the free carbon allowances that have shielded those same industries from the full cost of the EU's emissions trading system.
According to a draft seen by Montel on Thursday (2026-05-21), the Commission is considering raising the stringency of product benchmarks governing free EUA allocations by an average of around 17% for the 2026-2030 period.2 The benchmarks determine how many carbon allowances each sector receives without paying, calibrating the gap between the EU's decarbonisation ambitions and industry competitiveness requirements.
The proposed cuts are not uniform. Iron casting faces the steepest reduction, with its benchmark falling 42% to 0.164 allowances per tonne for 2026-2030, down from 0.282 allowances per tonne during 2021-2025.2 Coke would see its benchmark cut 34% to 0.143 allowances per tonne, according to the same draft. Both sectors supply materials that run through European chemical production chains, making the downstream effect on chemical manufacturers — which operate their own ETS benchmarks — a central point of industry concern.
The Commission confirmed to reporters in Brussels that total free allowances for eligible operators would be roughly 12% lower than the previous five-year period.1 Those allowances carry an estimated total value of around €200 billion — the implicit transfer from the ETS that has allowed energy-intensive industries to compete while facing carbon costs their Asian and Middle Eastern rivals do not. Reducing that pool by more than a tenth is not a minor recalibration.
Wopke Hoekstra, the EU's climate commissioner, said in earlier remarks that the Commission would bring forward "targeted improvements" to the EU emissions trading system as part of a review due in July.5 The leaked benchmark draft represents the most concrete signal yet of how far those improvements might cut into industry's carbon cushion.
For chemical producers, the pressure compounds an already difficult period. BASF, Europe's largest chemicals group, was already contending with higher energy costs from the Iran conflict, with analysts at Bernstein Research noting that prolonged disruption could weigh on parts of the business despite the company's European sites now sourcing most gas from Norway.3 A simultaneous reduction in free allowances raises the effective carbon cost on production processes that are difficult to decarbonise quickly, from steam cracking to ammonia synthesis.
The Commission has been careful to frame the benchmark tightening as essential to the system's environmental integrity. In remarks on Wednesday (2026-05-13), an EC official warned that any emergency state aid granted by EU member states in response to the Iran war must not neutralise the ETS price signal or alter the power generation merit order.4 Brussels intends to maintain carbon pricing discipline even as it extends industry protection through trade measures.
The gap between those two objectives is precisely what industry lobbyists have sought to exploit. Sectors facing benchmark cuts in the 17-42% range argue that the reductions presuppose decarbonisation rates that available technology cannot deliver before 2030, and that the result will be to push production — and emissions — outside the EU rather than eliminate them.
ICE EUA December-rolling prices held around €78.78 per tonne on Tuesday (2026-06-30). A 17% average benchmark tightening means fewer allowances distributed for free, which in principle tightens net supply in the market — a bullish impulse for EUA prices, even if the effect unfolds over the five-year period rather than immediately.
Whether the final benchmarks come in at the leaked 17% average, or soften after industry consultation, depends in part on how the Commission resolves the tension between its July ETS review and the parallel pressure to shield industry from a still-fragile competitive environment. The Commission's simultaneous tightening of steel import quotas suggests it considers targeted protection and carbon-market stringency complementary. Whether iron casting and coke — and the chemical supply chains they feed — accept that logic is less certain.2,1