Cefic urges EC to drop conditions on free EUAs as 17% benchmark tightening enters draft
Europe's chemical industry lobby challenged the commission on June 30 over proposed strings on free carbon allocations, as a leaked draft pointed to an average 17% tightening of benchmarks.
Europe's chemical industry lobby Cefic urged the European Commission on Tuesday (2026-06-30) to reconsider any move to attach conditions to free emission allowances in upcoming EU ETS reform proposals, arguing that the system's integrity depends on allocation predictability rather than compliance contingency.4
The intervention follows a leaked European Commission draft seen by Montel, which showed Brussels considering tightening the benchmarks governing free carbon allocation to industry by an average of around 17%. Iron casting was among the sectors flagged. A 17% reduction in benchmark generosity translates directly into a higher volume of carbon allowances that industries must purchase on the open market — at prices that have held elevated for months.1
Carbon via the KRBN proxy was quoted at €78.78 per allowance on Tuesday (2026-06-30). At that price, an average 17% reduction in free allocation is a material cost increase for energy-intensive chemical producers running thin margins on gas-linked feedstocks. ICE Endex TTF front-month was at €43.83 per megawatt-hour on the same date — the combined exposure of chemicals manufacturers to gas and carbon procurement costs is the arithmetic that Cefic's intervention is built around.1
The Commission has signalled that it intends to use ETS reform to sharpen the carbon price signal rather than blunt it. On Wednesday (2026-05-20), an EC official told Montel 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. The draft guidance reflected the Commission's consistent position that crisis-response support for industry must work around the carbon market, not through it.2
That posture puts the Commission and the chemical sector on divergent trajectories. Cefic's argument is that attaching conditions to free allowances introduces uncertainty into a planning horizon that multi-year capital projects require to be fixed. A petrochemical facility deciding whether to upgrade European production assets or redirect investment to jurisdictions with lower carbon costs needs to model a stable allocation baseline; a conditional allocation that can be reduced or withheld based on compliance criteria introduces a variable that site economics cannot accommodate.4
The broader competitiveness context sharpens the stakes. European manufacturers across industries have faced intensifying competition from Chinese producers over the past two years. Chinese brands now account for 20% of the European hybrid vehicle market and 11% of electric-vehicle sales, while German car makers have seen their share of the Chinese domestic market fall from 27% to 17%, according to Rhodium data cited by The Economist. The automotive sector's experience is instructive for chemicals: competitive pressure from lower-cost producers is most damaging when it coincides with a period of elevated domestic input costs.3
Chemical production is more directly exposed to carbon and gas costs than automotive assembly, because gas functions as both feedstock and energy source. An ammonia or methanol plant that cannot pass through higher EUA costs to downstream customers faces a structural profitability problem at a level that tariff protection cannot fully offset. Free allocation was designed precisely to address that problem while the sector remains below a carbon intensity floor; tightening the benchmark moves the floor without changing the industry's gas dependency.1,4
The Commission has not published final proposals. Cefic's submission on Tuesday (2026-06-30) was directed at the reform consultation, which precedes any legislative text. The industry's preferred outcome is not a reversal of the carbon price mechanism but a recalibration of how the allocation benchmarks are drawn, and a removal of conditions that would tie allocation access to behavioural compliance criteria the sector considers unworkable. Whether the Commission accepts that argument or presses ahead with the 17% tightening will determine the EUA demand outlook from the chemical sector through the second half of this decade.4,1