The European Commission closed its consultation on proposed EU Emissions Trading System (EU ETS) reforms on 3 November, advancing the policy process without adopting legislation or changing free-allocation rules or Carbon Border Adjustment Mechanism (CBAM) obligations. For European producers and companies trading with the EU, the proposals could affect industrial carbon costs, but their effects depend on the final legislation and separate CBAM rules.
Reform package remains under discussion
The consultation covered a wider package addressing stationary industrial installations, the Market Stability Reserve and free-allocation benchmarks. It includes COM(2026)616 on broader EU ETS reform, COM(2026)619 on heat and fuel benchmark adjustments, and COM(2026)620 on related monitoring, reporting and verification simplification in maritime regulation.
The Commission presented the proposals in July 2026, as part of the EU’s effort to reconcile industrial competitiveness, investment in decarbonisation and longer-term emissions-reduction objectives. Closing the feedback period is a procedural step in negotiations, not adoption of the proposed legislation.
The review matters to CBAM because the EU ETS sets the underlying carbon-price framework affecting European industry. Changes to allowance allocation, carbon-market operation and industrial support could alter costs for EU producers and their financial comparison with imports. For CBAM-covered sectors, these changes could also affect commercial assumptions about carbon-border liabilities, subject to the final legislation and CBAM calculation rules.
Free allocation and industrial costs
Industrial installations in sectors considered exposed to carbon leakage have historically received some emissions allowances without charge. The gradual adjustment of free allocation interacts with the introduction of CBAM certificate obligations. Separately, for 2026–2030, the Commission has proposed revising the heat and fuel benchmarks used to calculate free allocation.
The Council adopted its negotiating position on the benchmark proposal on 16 September, and the European Parliament adopted amendments on 22 October. Those positions provide a framework for negotiations, but do not constitute a final legislative agreement.
The broader EU ETS reform also raises questions about how carbon-market revenues could support industrial decarbonisation investment. For steel, cement, aluminium and other energy-intensive producers, investment economics depend on expected carbon-price levels, public support and the costs of alternative production technologies.
For exporters in Serbia, Montenegro and elsewhere in Southeast Europe, changes in European industrial carbon costs could affect the relative competitiveness of imported products. The financial consequences cannot be determined from the consultation deadline alone.
Downstream CBAM expansion is a separate file
The EU’s proposal to extend CBAM to additional downstream products is separate from the EU ETS reform. File 2025/0419(COD), based on COM(2025)989, remains under legislative negotiation and includes proposed provisions for selected manufactured goods, precursors and anti-circumvention measures.
The proposed 2028 start for expanded product coverage has not become final law. European importers, industrial exporters and lenders therefore need to assess current legislation, EU ETS reform scenarios and potential downstream CBAM expansion separately. No new free-allocation rule, certificate-price formula or downstream CBAM obligation took effect on 3 November.