Contrary to expectations, the European carbon market strengthened after the European Commission unveiled its long-awaited EU ETS reform proposals, despite measures that could increase allowance availability later in the decade.

Among the proposed measures, the planned reduction of the Linear Reduction Factor (LRF) from the current 4.3% to 3.7% for 2031–2035 is one of the most significant. According to WWF estimates, this adjustment alone could add around 2 billion EU ETS allowances to the market.

The December 2026 EUA contract surged by approximately €7 in the immediate aftermath of the announcement, briefly touching an intraday high of €86.91 on 22 July, its highest level since January. The initial buying interest, however, proved difficult to sustain, with profit-taking emerging at higher price levels as traders digested the details of the reform proposals. The contract eventually eased back to settle at €83.40 on Friday, while still posting a solid weekly gain of 5.4%.

Following a tumultuous week, the European carbon market calmed on Monday, with prices trading broadly in line with Friday’s settlement. Market participants shifted their focus away from the headline announcements and toward the reality that the reform package still faces a lengthy legislative process involving both the European Parliament and the Council, leaving considerable uncertainty over the final shape of the reforms.

The ETS review proposal marks only the beginning of the EU legislative process, which is expected to take several months before a final vote in the European Parliament. According to Ireland’s environment minister, whose country currently holds the rotating Presidency of the Council of the European Union, the objective is to reach an agreement among Member States ahead of the meeting of EU environment ministers on 11 December.

Meanwhile, the European Parliament is seeking to expedite the legislative process, with trilogue negotiations between the three EU institutions potentially starting in early 2027 and a final agreement targeted by the end of the first quarter of the year—“an unusually ambitious timetable for one of the bloc’s most technically complex pieces of climate legislation,” as stated by Clean Energy Wire.