Changes to free emission allowances: who will be affected and how to prepare?

The European Union has prepared a package of legislative measures, Fit for 55, aimed at achieving the EU's climate goals of reducing Europe's greenhouse gas emissions by 55% by 2030 compared to 1990. The package includes a revision of the Directive establishing a greenhouse gas emissions trading scheme (EU ETS Directive), which is the basis for the current emissions trading scheme. The existing system is thus facing changes, including to the rules under which emission allowances are allocated free of charge.

Operators whose activities require free emission allowances should therefore start preparing for the change as soon as possible. The revision of the Directive brings both new opportunities and the risk that if operators do not comply with the new requirements, their free allowances may be reduced.

Reduction of free allowances must be taken into account by all

The revision of the EU ETS Directive brings a number of changes to the ETS in a very short timeframe. In fact, the EU needs to make substantial progress in its efforts to reduce emissions if it is to meet its 2030 targets.

One of the fundamental changes is to reduce the total quantity of allowances in the system. Therefore, all operators have to take into account a certain reduction in the number of allowances.

However, operators can influence whether they are affected by further reductions in the number of free allowances. By introducing additional conditions for obtaining allowances, the European Commission is trying to encourage operators to transform their businesses towards sustainability and climate protection. For example, the Commission is introducing a completely new document, the Climate Neutrality Plan, which, although not mandatory for operators to adopt, may affect the final quantity of allowances allocated free of charge to some operators. For other operators, it makes full allocation conditional on compliance with the measures in the energy audit.

Mandatory carbon monitoring from October and tariffs from 2026

Another new feature is the introduction of the Carbon Border Adjustment Mechanism (CBAM), which targets operations in selected sectors at risk of carbon leakage, i.e. those where there is a higher risk that operators will try to avoid the cost of purchasing emission allowances by moving production to countries with lower levels of climate protection. The first phase is to start mandatory reporting already this October. This will be followed in 2026 by the obligation to purchase and retire CBAM (carbon duty) certificates for goods imported into the EU whose production is linked to greenhouse gas emissions. The aim is to financially offset any cheaper production abroad.

In addition to the gradual reduction of the amount of free emission allowances and the tightening of the conditions imposed on individual facilities whose activities generate greenhouse gas emissions, the European Union is also extending support for modernisation and innovation. This increases the amount of funding that can be drawn from the modernisation and innovation fund for individual plants to invest in technologies that reduce emissions. It also expands the number of priority areas in which funds can be invested. The Fit for 55 package is also an opportunity to modernise production and contribute to climate protection.

Other rules are also changing

In addition to the changes to the emissions trading scheme, the Fit for 55 package brings changes in other areas that may be important for businesses. These include:

• The revision of the Industrial Emissions Directive and the related new obligation to introduce an environmental management system and to draw up an installation transformation plan, as well as stricter rules for setting emission limit values and granting integrated permits‍‍
• Carbon footprint calculation and ESG reporting

Do you need to adapt your operation to changes in the allocation of emission allowances?

We have been working on climate protection for a long time. We will help you navigate the complex environmental legislation, identify which changes affect your business and prepare you so that the new obligations do not surprise you, but are an opportunity for further development of your business.