The EU ETS is changing — are you ready?

If you haven't been closely watching the EU Emissions Trading Scheme (EU ETS) lately, now is the time to get up to date.

2026 is shaping up to be one of the most consequential years for the EU ETS since the "Fit for 55" reforms, with a new suite of policy reforms that will affect compliance costs, procurement strategy, and carbon price exposure across every covered sector.

If your carbon compliance strategy was set before this market shift, it may be due a rethink.

(This article provides a summary of our comprehensive EU ETS briefing, which can be accessed, here.)

2026 – a test of ETS ambition

2026 has been a roller coaster ride for the EU ETS.

Increased EU climate policy ambition is shaping the EU carbon market more than ever. The "Fit for 55" package, agreed back in 2023, set in motion a series of structural changes that are now coming into effect.

Supply is tightening as the linear reduction factor ramps up again, 27 million allowances have been cut from the auction calendar and the extra REPowerEU volumes stop in June 2026.

Meanwhile demand continues to grow with tightening benchmarks, CBAM implementation and free allocation coming to an end for many sectors.

As balances tighten and coverage expands, the EU carbon market has attracted not just compliance buyers but a growing influx of traders and speculators.

EUA prices reached over €90 early this year, driven in part by a wave of investors buying into forecasts of €100+ carbon prices.

Then came a sharp reversal as political uncertainty over the scale of future ambition, exacerbated by the Iran conflict spooked the market.

EUAs lost around 30% through Q1 2026, as investors unwound record long positions and exited the market – see chart below. Since then, opportunistic buyers have stepped back in, and prices have partially recovered but remain rangebound.

There’s more to come…

A comprehensive EU ETS review is due by July 2026.

The Commission proposal is expected on 15 July, covering (amongst others) the Market Stability Reserve, free allocations, revenue use, and potentially the scope of aviation, maritime and municipal waste coverage.

The outcome is far from decided, as reforms need to balance ambitious EU climate targets with growing political pressure to protect industrial competitiveness.

ETS 2, a separate scheme covering fuel suppliers to buildings and road transport, goes live in 2028, adding another layer of complexity to an already evolving landscape.

….and we haven’t even covered the potential linking of the EU ETS to the UK ETS which might get political confirmation as early as next month should the UK-EU Summit go ahead

Tim Atkinson, Head of Carbon at CFP Energy:

“We have seen a period of unexpected policy uncertainty in the EU carbon market. Whilst legislators appear to be against making any material changes to future EU ETS ambition, one thing is clear - operators face a significant challenge to keep up to date with policy, develop a compliance strategy and execute trades in an increasingly volatile carbon market”

Get prepared

As renewable generation continues its remarkable growth, the burden of ETS emissions cuts is shifting from power generation to energy-intensive industries. However, the availability and high cost of industrial abatement means that actual emissions reductions could be some way off.

In combination with the reduction of free allocation, this means the need to purchase allowances for ETS compliance will remain for some time.

If you're a compliance buyer or a company with exposure to carbon costs (such as CBAM), the combination of balances tightening, an active policy reform agenda and volatile carbon prices mean a fresh look at your compliance strategy could prove valuable.

Understanding policy changes to free allocation and decarbonisation opportunities will help define your allowance demand, but market access, managing price volatility and a view on where EUA prices are heading is now more important than ever.

CFP Energy have been a pioneer in carbon markets for over 20 years. We offer a full range of trading solutions, including spot and forward allowance transactions, and innovative structured products to manage price risk and reduce compliance costs.

We've put together a detailed briefing covering all of the key 2026 reforms, market dynamics, and what to watch in the months ahead.

Download the full EU ETS briefing here, or get in touch with the CFP Energy team to talk through what it means for you, here.