EU ETS proposal could add 1.29 billion to 1.61 billion gross allowances through 2040

By Cumulant Research | 18 July 2026

The European Commission did not propose a single allowanceallowanceAn allowance is a transferable permit that can be surrendered for one metric tonne of carbon-dioxide-equivalent emissions. path after 2035. It proposed a fork. Article 9 sets the annual linear reduction factorlinear reduction factorThe linear reduction factor is the percentage of a fixed historical reference quantity removed from the cap each year. at 3.7% for 2031-2035 and 1.7% from 2036. Article 9b says the factor would revert to 2.7% if suitable high-quality, high-integrity and cost-effective international credits are unavailable. Source: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

Holding the market's 2026 sector boundary constant, Cumulant Research calculates that the slower decline would add 1.044 billion base-capcapThe cap is the total quantity of allowances created for covered emissions in a particular year. allowances through 2040 under the credit-unavailable path and 1.356 billion under the credit-available path. Those are cumulative differences from a comparable continuation of current law, not figures published directly by the Commission. Calculation inputs: https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=COM%3A2025%3A735%3AFIN and https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

Proposed Article 9c separately increases the cap by 250 million allowances for auctions during 2031-2040, with the revenue intended to buy an equivalent quantity of certified permanent removals. Adding that increase produces 1.294 billion to 1.606 billion of gross additional allowance room. Source: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

The calculation starts with two official 2026 quantities. The Commission reported 1,185,420,090 allowances for electricity and heat generation, industrial production and maritime transport, plus 24,903,076 for aviation. Together they make 1,210,323,166 allowances on the fixed boundary used here. Source: https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=COM%3A2025%3A735%3AFIN

The same report gives the 2026 annual reduction as 87,913,405 allowances for the main cap and 1,330,226 for aviation. Their sum, 89,243,631, is the reduction produced by a 4.3% factor. Dividing that reduction by 4.3% gives an implied combined reference quantityreference quantityThe reference quantity is the fixed allowance base used to calculate the annual reduction rather than the previous year's shrinking cap. of about 2.075 billion allowances. The percentage is applied to this fixed reference quantity each year, much as a staircase removes equal-height steps rather than a constant share of the remaining staircase. Source: https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=COM%3A2025%3A735%3AFIN

For current law, we subtract 4.3% of the reference quantity in 2027 and 4.4% each year from 2028. For the proposal, we follow the same path through 2030, subtract 3.7% annually in 2031-2035, and then subtract either 2.7% or 1.7% annually. Current law otherwise produces a negative calculated quantity in 2040, so we stop issuance at zero for that year. The zero floor is our analytical convention, not language added to the Directive. Current-law factors: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02003L0087-20240301. Proposed factors: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

Both proposed paths use 3.7% in 2031-2035. That slower first step adds 217.9 million allowances relative to current law over those five years. The paths separate in 2036 because a one-percentage-point difference in the reduction factor compounds across the remaining annual caps. Cumulant's reconstruction puts the cumulative difference between the 1.7% and 2.7% paths at 311.3 million allowances for 2036-2040. Sources and calculation inputs: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf and https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=COM%3A2025%3A735%3AFIN

The lower end of the range is therefore the path with no suitable international credits. That result can sound backward until the mechanism is clear: unavailable credits trigger the faster 2.7% cap decline, leaving fewer allowances. Available credits allow the slower 1.7% decline and the larger allowance budget. Source: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

Article 9b would make up to 260 million allowances from the Union-wide cap available to finance the purchase of up to 260 megatonnes of qualifying international credits. The words from the Union-wide quantity matter: these allowances are earmarked from the cap rather than added on top of it. Their direct increment in our calculation is therefore zero. Source: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

Credit availability still changes the cap indirectly because it determines which post-2035 reduction factor applies. If the earmarked allowances are not used to buy credits, Article 9b says they would be allocated to the Industrial Decarbonisation Bank rather than removed automatically from the cap. Source: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

Article 9c would increase the cap by 250 million allowances and make them available for auctionauctionAn allowance auction is a sale in which eligible market participants bid for emissions permits. from 2031 through 2040. The Commission would use the proceeds to purchase an equivalent quantity of certified domestic permanent removals generated by BioCCSBioCCSBioenergy with carbon capture and storage captures carbon from biological material and places it in long-term storage. and DACCSDACCSDirect air capture with carbon storage uses machinery to remove carbon dioxide from ambient air and store it.. The reduction factor would not apply to this 250 million increase. Source: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

Calling this gross allowance roomgross allowance roomGross allowance room is the number of additional permits before subtracting any carbon removals or later cancellations intended to balance their climate effect. is essential. The permits increase the quantity companies could surrender, while the linked removals are meant to offset their climate effect. The proposal also requires corresponding allowances to be cancelled if operators directly use qualifying BioCCS removals, and it leaves the auction timing and purchasing details to delegated acts. Source: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

A further backstop of up to 10 million allowances could finance removal purchases if the first auctions raise insufficient revenue. Those allowances would come from within the Union-wide quantity, so they do not add another 10 million to the cap in this analysis. Source: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

The impact assessment shows a modeled 2030 EEAEEAThe European Economic Area combines the European Union with Iceland, Liechtenstein and Norway in a shared economic area. cap of 911 megatonnes for scenarios that include outgoing extra-EEA aviationextra-EEA aviationExtra-EEA aviation means flights between the European Economic Area and destinations outside it.. It explicitly says those figures include international extra-EEA aviation and maritime emissions other than carbon dioxide while excluding waste. That 911 figure belongs to a broader modeled scope and is not evidence that the proposal immediately adds 911 million allowances or emissions. Source: https://climate.ec.europa.eu/document/download/6dffbc5a-b5f3-4c51-b999-a6243e155e8c_en?filename=swd_2026_616_part_1_en.pdf

The same impact assessment presents 847 megatonnes in 2030 when extra-EEA aviation is excluded from that target scope. Our legal reconstruction reaches 847.122 million allowances in 2030 because it freezes the sectors and geographic coverage represented by the official 2026 allowance quantities. The close match is a useful cross-check, but the impact-assessment tables are modeled scenarios rather than the statutory calculation used here. Sources: https://climate.ec.europa.eu/document/download/6dffbc5a-b5f3-4c51-b999-a6243e155e8c_en?filename=swd_2026_616_part_1_en.pdf and https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=COM%3A2025%3A735%3AFIN

The calculation measures the number of permits that could exist under the stated legal paths. It does not predict how many permits would be auctioned in a particular year, how many companies would bank, how many would be placed in the Market Stability ReserveMarket Stability ReserveThe Market Stability Reserve changes auction supply when the number of unused allowances in circulation becomes unusually large or small., or how many tonnes operators would emit. The reserve changes auction supply in response to the allowance surplus, while operators surrendersurrenderTo surrender an allowance is to use and cancel it to cover one tonne of verified emissions. allowances against verified emissionsverified emissionsVerified emissions are operator-reported emissions that have been checked under the ETS monitoring and verification system.. Sources: https://climate.ec.europa.eu/eu-action/carbon-markets/eu-emissions-trading-system-eu-ets/market-stability-reserve_en and https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02003L0087-20240301

Nor is the additional allowance count an estimate of the proposal's effect on carbon prices, electricity prices, output, investment or employment. Those outcomes depend on demand, production, fuel and technology costs, expectations, bankingbankingBanking means keeping an unused allowance for compliance in a later year. and the final design adopted by lawmakers. The Commission's impact assessment models economic and environmental outcomes under specified assumptions, while this article performs a narrower legal quantity reconstruction. Source: https://climate.ec.europa.eu/document/download/6dffbc5a-b5f3-4c51-b999-a6243e155e8c_en?filename=swd_2026_616_part_1_en.pdf

COM(2026) 616 is a legislative proposallegislative proposalA legislative proposal is draft law that can be amended or rejected before taking effect.. The European Parliament and Council can amend it before adoption, including the reduction factors, credit facility, removal mechanism and sector expansions. Source: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf

Under the proposed text, the Commission would publish the revised Union-wide allowance quantity by September 2028. It would report by 31 January 2033 on the integrity, accounting, supply, demand and ETS implications of international credits. The conditional 1.7% or 2.7% path would begin in 2036. Source: https://climate.ec.europa.eu/document/download/c0b4ca8e-0e12-4b4e-9976-98c0b4224410_en?filename=com_2026_616_en.pdf