--- description: "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." title: "Free allocation: meaning and legal source" image: "https://greenfineprint.com/card/glossary/free-allocation.png?v=10bf8q9" url: "https://greenfineprint.com/glossary/free-allocation" --- 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. Legal source [ETS Directive, Article 10a ↗](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02003L0087-20240301#art%5F10a) 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](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02003L0087-20240301)) 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](https://greenfineprint.com/glossary/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](https://greenfineprint.com/glossary/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](https://greenfineprint.com/regulations/cbam) 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](https://greenfineprint.com/articles/eu-ets-free-allocation) shows, step by step, who gets free allowances and how many. ## Regulations DIRECTIVE 2003/87/EC In force Change pending ### [EU Emissions Trading System (EU ETS)](https://greenfineprint.com/regulations/eu-ets) Implementing Decision (EU) 2026/1862 set the cross-sectoral correction factor for free allocation at 100% for each year from 2026 to 2030 ## Used in PROPOSAL COM(2026) 616 In force Change pending ### [EU ETS review 2026: what the Commission's proposal would change, for whom and from when](https://greenfineprint.com/articles/eu-ets-review-changes) What the Commission's July 2026 EU ETS review proposal would change for installations, ships, flights, waste incinerators and EU countries, and from when. 16 min read DIRECTIVE 2003/87/EC, ART. 10A AND 10B In force Change pending ### [EU ETS free allocation: benchmarks, the carbon leakage list and how free allowances are cut](https://greenfineprint.com/articles/eu-ets-free-allocation) How EU ETS free allowances are worked out for 2026-2030: benchmarks, the carbon leakage list, the 20% conditions, the CBAM factor and two pending proposals. 15 min read DIRECTIVE 2003/87/EC In force Change pending ### [EU ETS compliance deadlines: monitor, verify and surrender allowances each year](https://greenfineprint.com/articles/eu-ets-compliance-cycle) EU ETS operators must report verified emissions by 31 March and surrender allowances by 30 September. Each step, who acts, and what a shortfall costs. 10 min read DIRECTIVE 2003/87/EC In force Change pending ### [EU ETS scope: does it apply to your installation, and can small emitters be excluded?](https://greenfineprint.com/articles/eu-ets-installations-scope) Fuel-burning units totalling over 20 MW, or an Annex I activity over its threshold, put an installation in the EU ETS. Plus the small-emitter exclusions. 12 min read REGULATION (EU) 2023/956 In force Change pending ### [EU CBAM certificate price: how certificates work and what they cost](https://greenfineprint.com/articles/cbam-certificates-price-cost) How the EU CBAM certificate price is set, when you can buy, the 50% quarterly holding rule, surrender by 30 September 2027, and a worked cost example. 10 min read REGULATION (EU) 2023/956 In force Change pending ### [EU CBAM 50-tonne threshold: does it apply to you, and what if you cross it?](https://greenfineprint.com/articles/cbam-50-tonne-threshold) At 50 tonnes or less a year of CBAM goods (not electricity or hydrogen), you're exempt from the EU CBAM. 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