EU Commission proposes slowing ETS carbon cuts, analysts see 13% EUA price drag

EU Commission proposes slowing ETS carbon cuts, analysts see 13% EUA price drag A Commission plan to ease the annual pace of allowance retirement could pull ICE EUA prices down by 13% over two years, Veyt estimates. The European Commission has proposed reducing the pace at which carbon allowances are retired under the EU Emissions Trading System to an annualised rate of 3.7%, according to Montel News, a move framed as relief for energy-intensive industry facing elevated compliance costs. ICE EUA Dec-rolling contracts closed Friday (2026-07-17) at €78.40 per tonne, with traders still awaiting formal legislative text before repositioning.⁶ A senior Veyt analyst said on Wednesday (2026-05-20) that the ETS adjustment being considered by the Commission could reduce carbon prices across the bloc by about 13% over the next two years. For European power markets, where the coal-to-gas switching calculation runs directly off EUA costs, a move of that scale would shift generator margins and carbon-pass-through pricing across the strip.¹ The political backdrop has been building for months. Italy urged the EU in late April (2026-04-23) to scrap the planned ETS benchmark revision entirely, warning that tighter rules would raise compliance costs and weaken European manufacturers competing against cheaper Asian production. Rome's position was the most explicit, but it reflected a broader unease among industrial-heavy member states about the pace of carbon cost escalation.⁴ A leaked Commission draft from April (2026-04-02), seen by Montel, showed the Commission had initially been considering a 17% tightening of the benchmarks governing free allocations to industry, with iron casting among the sectors in scope. The distance between that starting point and the current proposal illustrates how much ground the industrial lobby gained in the intervening weeks.⁵ Market mechanics add another layer. Under existing ETS rules, when the total number of allowances in circulation exceeds 833 million tonnes, auction volumes are automatically reduced by 24% via the Market Stability Reserve. Montel reporting suggests the Commission's adjustment would loosen the effective absorption capacity of that mechanism over time, reducing the system's ability to tighten supply during high-quota periods.¹ Energy Aspects added a second channel of concern in May, warning that the Commission's broader suite of industry support measures, including the Industrial Decarbonisation Bank and a new ETS investment booster scheme, could push additional allowances into the market from next year. The consultancy said this combination was likely to keep EUA prices suppressed through much of next year, independent of the reduction rate proposal.² The ETS shift fits a wider pattern of climate-rule adjustment running through EU policy. The Economist noted in May (2026-05-17) that the carbon border adjustment mechanism has already been simplified to exclude shipments below 50 tonnes, a threshold the Commission says removes 90% of originally obliged firms while keeping 99% of covered emissions within the scheme's scope. Both changes follow the same political logic: industrial protection framed as regulatory proportionality.³ The muted market response so far reflects experience. Prior Commission signals about ETS structural reform have rarely moved the Dec-rolling strip materially until formal proposals reach Parliament and member state negotiations begin. At €78.40/tCO2 as of Friday's close (2026-07-17), the EUA market has not yet priced in Veyt's 13% downside case.¹ Whether that changes depends on parliamentary momentum and whether the opposition in industrially exposed member states translates into a durable blocking coalition. Italy has been vocal; northern states with more stringent national climate frameworks have not yet signalled alignment with Rome's position. The spread between the Commission's original 17% tightening proposal and the current 3.7% reduction rate is the political range within which final text will be negotiated — and the range within which the EUA strip will ultimately reprice.^4,5