Free Allocation

Free allocation of EUAs (European Union Allowances) refers to the distribution of emission allowances at no cost to certain industrial sectors under the EU Emissions Trading System (EU ETS). Each EUA grants the holder the right to emit one tonne of CO₂ or its equivalent in other greenhouse gases. This mechanism is primarily designed to protect energy-intensive industries from the risk of carbon leakage, support competitiveness and facilitate energy transition.

For most industries covered by the EU ETS, free allocation is being progressively reduced in line with the EU’s strengthened climate targets and tightening cap on emissions.

CBAM-covered industries —such as cement, steel, aluminium, fertilizers, electricity, and hydrogen— have historically received significant free allocation due to their exposure to carbon leakage risks. However, with the gradual introduction of CBAM, such industries will see a progressive reduction in free EUA allocation from 2026 to 2034, as CBAM imposes a carbon price on imports equivalent to the EU ETS cost.