Strings attached

Welcome to Carbon Risk — helping investors navigate 'The Currency of Decarbonisation'! 🏭.

For several months now its been clear that policymakers have wanted to reform the EU carbon market such that industrial decarbonisation is accelerated through sharper incentives, and supported with funding from EU ETS auction revenues.

Prior to the release of the European Commission's review into the EU ETS last Friday, the big dark cloud hanging over the market was the design of the so-called 'Investment Booster' and the extent to which free allocations would be extended beyond 2034. Investors were concerned that the availability of additional allowances would put downward pressure on the EU carbon price.

Here's what's actually been proposed, how it ties in with other policy announcements from the Commission, and the ultimate implications for industrial investment in decarbonisation.*

*Before getting into the nitty gritty, remember that this is only a proposal. There will now be several months of negotiation between MEPs and Member States with Q1 2027 the target date to secure an agreement. The EU ETS is also subject to reflexivity; a move towards higher or lower carbon prices (in response to this proposal, or something else) may cause parties to the talks to adjust their negotiating position.