Fuel for thought
Alongside a 141-page ETS Directive proposal and a revised heat and fuel benchmarks proposal, the Commission has confirmed an immediate €6 billion allocation boost – equivalent to an additional 80 million tonnes of allowances – for heavy industry, including refineries, delivered through revised 2026–2030 fallback benchmarks.
For refinery compliance teams, the headline change is that free allocation is being extended well beyond its previous 2030 cut-off.
The proposal prolongs free allowances for heavy industry into the 2040s, and pushes back the phase-out of free allocation for sectors covered by the Carbon Border Adjustment Mechanism (CBAM) from 2034 to 2038 – a four-year extension that gives refineries substantially longer to plan capital investment in emissions-reduction technology before losing free allocation altogether.
The scale of the wider package matters for how to read the refinery-specific numbers.
The Commission is proposing to lower the ETS cap's Linear Reduction Factor (LRF) from the current 4.3 per cent to 3.7 per cent for 2031–2035 and to 1.7 per cent from 2036 onward – a change significant enough that analysts calculate it defers the 'ETS Endgame', the point at which the cap effectively reaches zero, from around 2039 to around 2048.
A new €100 billion Industrial Decarbonisation Bank is also proposed, with a first phase of 400 million allowances (worth around €30 billion) intended to fund decarbonisation projects from 2028.
Market reaction to the proposal was described by analysts as a "relief rally": EUA prices rose by roughly €7 in the days following publication, reaching as high as €86 by 22 July, as the confirmed terms – particularly the gradual release schedule for the Investment Booster allowances – turned out less bearish for supply than the market's worst-case expectations.
Independent modelling by carbon market analysts puts the ETS price at around 22 per cent lower in 2030 under the new proposal than under current legislation, though the gap narrows substantially by 2035 as the tighter post-2030 reduction factors take effect.
None of this is finalised.
The 17 July proposal is the opening step in the EU's ordinary legislative procedure, requiring agreement between the European Parliament and Council.
Co-legislators have indicated they are aiming to complete the process by the first quarter of 2027, and the specific benchmark values applying to refinery products remain subject to negotiation before adoption.
Refineries budgeting compliance costs against these figures should treat the July proposal as the current best estimate of the 2026–2030 framework, not a settled outcome.
For refinery process analysers and emissions monitoring providers, the practical read-through is that continuous, auditable emissions data becomes more valuable rather than less as the free-allocation runway lengthens.
Extended free allocation reduces near-term financial exposure to the cap, but doesn't reduce the reporting and verification burden that determines how many allowances a given site actually qualifies for under the fallback benchmarks.
PIN 27.3 June/July 2026
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