All information is accurate as of 24th July 2026
On Friday 17 July the European Commission published its proposal to update the rules for the EU Emissions Trading System. The market was quick to react. The price of an EU Allowance (EUA) had dipped in the run-up to the release but rallied strongly after traders digested the details.
By Friday, many organisations within carbon markets had published their initial analysis. Summaries of the changes to the cap, free allocation, the Market Stability Reserve (MSR), scope and the introduction of an investor booster had been presented.
» Read more: Our latest Special Report provides an expert analysis of the review, examining the key changes, potential market implications and practical considerations for organisations exposed to the EU ETS. If you're not already part of our Carbon Support Programme, get in touch to request a copy.
There are two potential implications for EUA prices. First, there is scope for EUA prices to rise over the rest of 2026 and parts of 2027 given the ETS review is unlikely to materially prevent the existing forecast market tightening in these years. Second, that over the longer term the proposal suggests a likely loosening of the market versus existing rules.
But this is far from the end of the story. While the European Council and European Parliament now thrash out their internal positions on the Commission’s proposals ahead of arriving at a common position in 2027, businesses across Europe and businesses outside of Europe exposed to the price of an EUA via CBAM will be making decisions about what the changes mean for them.
At Redshaw Advisors we work with a wide range of industrials with varying levels of exposure to the EU ETS, supporting them to manage financial risk as they navigate price volatility and make both near-term and long-term decisions. Following the publication of this proposal by the European Commission, businesses with exposure to the EU ETS will no doubt have to do both of these things: navigate price volatility and make long-term decisions.
The potential for short-term price volatility
While prices are likely to rise in the short-term, as we’ve seen in recent weeks and months, headlines have the potential to drive volatility in the market. We saw this in the UK Emissions Trading Scheme last week, where comments by German MEP Peter Liese around the topic of linkage between the UK and EU ETS caused prices to rise.
With the European Council and Parliament both working to establish their internal positions over the coming months, any hint of news about either institutions’ position on the rule changes could move prices. For businesses expecting to procure EUAs over this period, having an understanding of the policy process and what any headlines might mean for a final position will be important.
Carbon Support Programme: Redshaw Advisor’s Market Insights solution provides concise, decision-ready reporting that helps organisations understand carbon markets, anticipate change and act with confidence.
A moment to make long-term decisions
Changes to free allocation are especially interesting for businesses looking to plan ahead. For example, the proposed Investment Booster would make 400 Mt of allowances available for installations over 2028-31, but to access this free allocation installations must demonstrate investment in decarbonisation. In a similar vein, the proposals also make free allocation from 2031 onwards conditional on decarbonisation, with most installations to get 80% of free allocation entitlement upon establishment of a decarbonisation plan, and the remaining 20% upon verification that the decarbonisation investments have been successfully implemented. Having an understanding of how this mechanism will work, as well as an outlook on long-term prices will be fundamental for businesses aiming to build a business case around any investment in decarbonisation initiatives.
Carbon Support Programme: Redshaw Advisor’s Financial risk modelling solution quantifies your exposure, tests scenarios, and enables confident financial management and procurement decisions.
What the detail of this review shows us is how individual this story will be for businesses exposed to the EU ETS. There is no one size fits all summary of the changes and there will be no one size fits all response from business affected. Now is the time to build an understanding of the detail.
Book a meeting with one of our expert advisors to discuss what the EU ETS review might mean for you.
