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Glossary

Free allocation

Under the EU Emissions Trading System (EU ETS), allowances given to installations free of charge under harmonised EU rules, rather than auctioned. EU-wide benchmarks set the amount, and sectors deemed at risk of carbon leakage get more.

Who it applies to
Operators of installations in the EU ETS. Electricity production gets none, except electricity produced from waste gases and a few other cases. From 1 January 2026, aircraft operators get none either, apart from reserved quantities.
Example
An installation whose processes serve a sector not on the carbon leakage list gets 30% of the amount its benchmarks give in 2026, falling by equal amounts to nothing in 2030. An installation in a sector on the list gets 100% of that amount until 2030, before other factors such as the CBAM factor.
Also known as
free allowances, free allocation of allowances

The ETS Directive (Directive 2003/87/EC) provides for EU-wide, fully harmonised rules on allocating allowances free of charge. Since 2021, the share of allowances to be auctioned has been 57%.

The EU country calculates each installation's amount for each year, one sub-installation at a time: for each benchmark sub-installation, the value of the relevant benchmark is multiplied by its historical activity level, while process emissions sub-installations, which have no benchmark, follow a separate rule based on their process-related historical activity level. That amount is then multiplied by a factor for carbon leakage, which is 1 for sectors deemed at risk, and, for goods covered by the Carbon Border Adjustment Mechanism (CBAM), by the CBAM factor. By 30 June each year, the competent authorities issue that year's free allowances.

Free allocation for goods covered by CBAM falls each year from 2026, and from 2034 no CBAM factor applies, so they get none. Our CBAM hub covers CBAM itself.

Pending, not law: Commission proposal COM(2026) 616 would keep sectors deemed at risk of carbon leakage at 100% free allocation until 2040. From 2031, an installation would get 80% of its free allocation once its "Invest in EU decarbonisation plan" is verified and approved, and the other 20% only after its decarbonisation investments are confirmed.

Our free allocation explainer shows, step by step, who gets free allowances and how many.

Regulations

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