ETS: Council of the EU agrees to boost free carbon allowances for industries at risk of carbon leakage

EU member states, meeting at ambassadors' level, agreed on 16 September 2026 to expand free carbon allowances granted to sectors covered by the heat and fuel benchmarks under the EU Emissions Trading System (ETS), covering the 2026-2030 period.

The aim is to shield energy-intensive industries, which are most exposed to the risk of carbon leakage, from competitive disadvantage as the EU pushes ahead with its broader ETS reform.

To achieve this, the Council will draw on roughly 88 million allowances already set aside for free allocation. The European Commission estimates this will save affected sectors around €6 billion. On top of this, member states agreed to release an additional 33 million allowances that had previously gone unused because some installations failed to meet existing ETS eligibility conditions, bringing them into the pool now available for free distribution.

The European Commission tabled this revision in July 2026, after industry and member states warned that the heat and fuel ETS benchmarks (updated in June 2026 for 2026-2030) left energy-intensive sectors more exposed to carbon leakage. EU leaders had flagged this incoming proposal at their June 2026 summit.

Ireland's Minister for Climate, Energy and the Environment, Darragh O'Brien, who chaired the talks in his capacity holding the rotating Council presidency, described the agreement as the product of strong cooperation between member states on a file with major implications for both climate policy and EU industry.

“By giving more free allowances for energy-intensive sectors during this crucial transition period, we are safeguarding jobs and ensuring that our industries remain competitive, while we work towards our ambitious climate goals,” he said.

As for the next steps, trilogue talks with the European Parliament can begin once MEPs have adopted their own position on the file. The Irish presidency has said it wants to reach a final agreement quickly, to allow the revised benchmarks to be implemented on schedule and to give continued certainty to the industries concerned.