EU Commission proposes EUR 6bn extra in free ETS allowances for heating sector
The July 17 draft would expand free allocation under revised heating benchmarks, adding direct bearish pressure to ICE EUA Dec-rolling at €78.40/tCO2.
The European Commission on Friday (2026-07-17) proposed changes to EU Emissions Trading System heating sector benchmarks for 2026 to 2030 that would deliver an additional EUR 6 billion worth of free carbon allowances to industry, Montel reported.7 ICE EUA Dec-rolling was trading at €78.40/tCO2 on Monday (2026-07-20), with market signals uniformly bearish on the proposal.
Free permits displace secondary-market demand. Each additional tonne freely allocated under the revised heating benchmarks is one less tonne that compliance buyers must source at auction or from the secondary market through the end of the decade. The scale of the draft concession sits against an EU ETS revenue base that reached EUR 43.2 billion in 2025, an 11% increase on the prior year, and accounted for 62% of all global carbon pricing scheme revenues, according to the International Carbon Action Partnership, as cited by Montel.1
The proposed EUR 6 billion in extra free allowances, spread across five compliance years, amounts to roughly 14% of that 2025 annual total in free allowance value — a meaningful slice of the scheme's commercial throughput directed away from the market.1,7
Reaching this point required the Commission to navigate sustained member-state opposition. Italy called in May 2026 for the EU to scrap any benchmark revision outright, warning that proceeding would raise compliance costs for energy-intensive industries and weaken European industrial competitiveness, Montel reported.2 Czechia, Greece, Poland and Romania filed separate objections, each arguing that revised benchmark values threatened the cost structures of heavy industry.4
Those objections shaped the eventual compromise that preceded the July 17 draft. EU member states voted on Monday (2026-06-15) to approve updated benchmark values after the Commission offered concessions, E&E News reported, citing diplomats from three countries.5 Earlier, on 11 May 2026, the Commission had set free allocation levels at approximately 75% of covered industry emissions under the new benchmark framework, a measure framed at the time as an incentive for industrial electrification, Gasworld reported.3
The July 17 proposal adds a further layer of free allocation above that approved floor. The ETS covers around 40% of EU total greenhouse gas emissions across aviation, heavy industry and the power sector, Edie reported.6 Heating sector installations receiving expanded free allocations under the revised benchmarks would see their compliance obligations reduced accordingly, directly cutting their demand on the cap-and-trade mechanism.
The political precedent from June (2026-06-15) suggests passage is achievable but not certain. Italy's position in May 2026 was that the benchmark revision was unacceptable; the June vote came only after the Commission shifted its terms.5,2 A comparable blocking coalition forming around the July 17 draft could trim or delay implementation. The difference between EUR 6 billion and a smaller final figure will determine how much secondary-market demand the revision displaces from ICE EUA Dec-rolling positions through 2030.7
The formal adoption timeline is the variable the market cannot price precisely yet. Per-installation allocation figures become concrete only after the draft clears the legislative process. Until then, the EUR 6 billion headline captures the ceiling of bearish impact — not the assured outcome.7,5