EU negotiators have agreed to increase free emission allowances for industrial activities covered by the heat and fuel benchmarks. The provisional agreement announced by the Council on 12 November would increase allocations for 2026–2030, easing the cost of emissions for eligible processes across several energy-intensive industries.
The agreement changes how much of an installation’s emissions compliance obligation can be covered by free allocation. Its effect will depend on the benchmark used for the activity and the amount of eligible heat or fuel consumed.
Which activities use these benchmarks?
Most free allocation under the EU ETS is calculated using product benchmarks. Where a product-specific benchmark is unavailable, the system can use heat or fuel consumption to determine the allocation instead. These fallback approaches account for around 25% of total free allocation, according to the Council, and cover processes in sectors including chemicals, paper and ceramics.
A heat benchmark assigns an emissions value to each unit of eligible heat. For unchanged eligible heat consumption, a higher benchmark value increases the number of allowances allocated free, subject to the other allocation rules. Two installations facing the same market price for carbon can consequently have different allowance purchase requirements.
How the 121 million allowances are composed
The Council describes a package of roughly 121 million allowances for the five-year period. Around 88 million come from the Commission’s initial proposal, using allowances available for free allocation under existing rules. Negotiators added 28 million previously left unallocated because installations had not met conditions concerning energy audits or climate-neutrality plans. A further 5 million are reserved for targeted support to highly exposed, energy-intensive sectors.
Commissioner Wopke Hoekstra’s announcement highlights ceramics as a beneficiary of the sector-specific approach and values the additional allowances at around €10 billion over 2026–2030. Any unused allowances from the targeted measure would go to the Innovation and Modernisation Funds.
What remains before implementation
The Council and Parliament must endorse the provisional agreement and formally adopt the legislation following legal-linguistic revision. The Commission would then adopt implementing rules for calculating the heat and fuel benchmarks. The Council places completion of this legislative file in the first quarter of 2027 under the wider single-market roadmap.
The revision follows the regular benchmark update adopted in June 2026 and the Commission’s separate proposal in July to increase fallback-based allocations. The revised values established by the implementing rules will determine the increase applicable to individual activities.
The sector-specific work addresses a problem identified in the Commission’s proposal: industrial processes using the same fallback approach can have very different opportunities to reduce emissions. A more tailored calculation for ceramics could change how much of the sector’s carbon cost is covered by free allocation during a period when fuel switching or the replacement of kiln equipment remains constrained by the available technology.
