What happened

Late on 12 November 2026 the Council of the EU announced a provisional agreement with the European Parliament to increase free carbon allowances for industry sectors that fall under the EU ETS heat and fuel benchmarks, from 2026 to 2030. As Mark Segal reported for ESG Today, the deal adds about 121 million allowances worth around €10 billion, well beyond the Commission's July proposal, and sets 5 million of them aside for sectors most exposed to carbon leakage (production moving to countries with weaker climate rules).

Most free allowances in the EU ETS are set by product benchmarks, such as tonnes of cement or steel, based on the most efficient plants. Where no product benchmark fits, a site's allocation is worked out from the heat or fuel it uses: these "fallback" benchmarks cover around a quarter of all free allocation, in sectors such as chemicals, pulp and paper, food and drink processing, ceramics and glass.

The Council's negotiating text of 16 September 2026 shows how the extra allowances are found:

  • Where they come from: around 88 million allowances already available for free allocation in 2026 to 2030, plus around 33 million left over because free allocation was cut elsewhere in the system.
  • What it does to the benchmarks: an indicative 9% cut on the 2021 to 2025 values instead of a steeper one, giving average heat and fuel benchmarks of about 43.0 and 38.7 allowances per terajoule.
  • Timing: the extra for 2026 is paid out with the 2027 allocation, which the text says leaves time to reflect it in the EU carbon border adjustment mechanism (CBAM).
  • Oil and gas left out: in the Council's text, oil and gas extraction, refineries and pipelines keep the existing, steeper cut, to keep the pressure on them to decarbonise.

The agreement now has to be endorsed by the Parliament and the Council before it becomes law, and the Commission then sets the rules for the revised allocations.

What it means for your business

Dividing ESG Today's two figures puts the extra allowances at about €83 each. To see what a fuel benchmark covers, take an illustrative EU food factory on the carbon leakage list that burns 20,000 MWh of natural gas a year in its boilers. On the 2026 government factor that gas gives off 4,039.80 tonnes CO2e. At 38.7 allowances per terajoule, its 72 terajoules of fuel earn about 2,786 free allowances before the other adjustments in the rules, about 69% of its emissions. The other 1,253 tonnes or so still have to be bought, because the benchmark is set by the most efficient plants, not the average one.

For UK businesses the effect is indirect, since UK sites are in the UK ETS, not the EU's. It touches you in three ways:

  • You run a site in the EU. If it is in one of the fallback benchmark sectors, its free allocation for 2027 to 2030 should be higher than the Commission had planned, with the 2026 top-up paid in 2027.
  • You compete with EU manufacturers. Chemicals, paper, food and drink, ceramics and glass makers in the EU keep more of their carbon cost covered for free for longer.
  • You import EU-made goods covered by the UK CBAM. From 1 January 2027 you may be able to reduce UK CBAM by the carbon price paid abroad, but free allowances count at zero in that sum (see our UK CBAM guide). More free allowances at the EU plant can mean less relief. Whether a good is in scope, and how much relief applies, follows HMRC's rules.

The UK and EU are also working towards linking their two carbon markets, which would bring free allocation rules closer together (see our report on the draft linking text). Nothing in this deal links them.

What to do now

  • Keep reporting the same emissions. Free allowances change who pays, not what is emitted: Scope 1 and 2 figures, SECR and Carbon Reduction Plans are unaffected.
  • If you have EU sites, check their allocation. Ask whoever handles your EU ETS compliance what the higher fallback benchmarks mean for 2027 to 2030, once the final text is adopted.
  • If you import from the EU, ask suppliers about free allowances. For UK CBAM goods, the supplier's free allocation affects the relief you can claim. Our CBAM checker says whether you need to register, and our EU and UK CBAM comparison shows how the two differ.
  • Watch for the formal vote. The figures here are from the provisional deal and the Council's negotiating text; the adopted law may differ in detail.