Luxembourg: The EU ETS review reached its first ministerial debate on 12 October 2026, when environment ministers discussed the Commission’s July proposal at the Environment Council. The meeting was a policy debate and not a vote, so nothing was decided, but the exchange showed how far capitals remain apart on the future of the Union’s carbon market.

The Commission tabled the proposal as COM(2026) 616 on 17 July 2026. It amends the ETS Directive 2003/87/EC and reshapes how heavy industry receives free allowances while the Carbon Border Adjustment Mechanism, known as CBAM, takes over part of the protective job.

What the EU ETS review would change

Two changes stand out. First, free allocation for sectors at risk of carbon leakage would be extended from 2030 to 2040, and from 2031 it would depend on investment in decarbonisation inside the Union. Second, the CBAM phase-in would run slower, ending in 2038 instead of 2034.

The CBAM factor shows the difference. Under current law the share of free allocation that producers of CBAM goods keep falls to 51.5% in 2030 and disappears after 2033. Under the proposal it would be 59% in 2030, 27% in 2033, 15% from 2034 to 2037 and zero from 2038. The explanatory memorandum says 15% of free allocation would be phased out through the factor reintroduced from 2028.

Where member states disagree

The Irish Presidency’s background paper of 25 September named three areas of divergence: the overall ambition trajectory, the distribution and use of revenue, and the sectoral scope. Press reports of the debate say ministers were divided on ambition, that a majority favoured a dedicated solution for CBAM exports, and that Czechia and Italy pushed for an industry-focused overhaul and a suspension of ETS 2. Those accounts rely on headlines, not Council conclusions, so they should be read with care.

Industry has taken its own position. European Aluminium asked on 12 October for the phase-out of free allocation to be put on hold until CBAM has proven effective. That request reflects a wider worry in the EU ETS review debate that importers could avoid the border charge while European producers lose their free allowances.

Carbon prices and the political calendar

Prices give the EU ETS review a market backdrop. The auction on 12 October cleared at €86.28 per tonne, and the official third-quarter CBAM certificate price, published on 5 October, was €82.32. Strong prices raise the cost of compliance for industry, which strengthens calls to slow the phase-out, but they also raise revenue for decarbonisation projects.

The timetable is tight. For the EU ETS review, the Presidency wants a first compromise text after the October meeting and a general approach at the December 2026 Environment Council. Leaders have committed to finishing the revision by the first quarter of 2027, and the Parliament rapporteur Peter Liese is reported to expect positions by the end of the year, with trilogues starting in January 2027.

The adopted 2040 climate target of a 90% net cut from 1990 levels, with limited international credits from 2036, adds pressure. The EU ETS review must show how industry reaches that goal while Brussels keeps jobs and investment at home.

What happens next

The next signals are the Presidency’s compromise text, the December general approach and the Parliament’s committee position. If ministers keep the 2038 CBAM end date and the free allocation extension, the EU ETS review will protect industry for longer but delay the full carbon price signal. If they trim those provisions, they will face louder warnings about leakage. Either way, 2026 is the year the Union decides how fast its carbon market bites.