27/07/2026 More Allowances, More Revenue? The Industrial-Policy Stakes of the EU ETS ReformEuropeEnergyShare Joseph Dellatte Resident Fellow and Project Manager - Energy and Climate Studies On July 17, the European Commission presented a draft reform of the European carbon market, which notably proposes to extend free emission allowances. The risk of this reform is that it could reinforce uncompetitive industrial trajectories and institutionalize a system of public subsidies at the expense of innovation, as this article-based on data from the International Monetary Fund-demonstrates. Instead, the EU should use carbon market revenues as a financial instrument to strengthen its competitiveness.Europe cannot out-subsidise China or reproduce the United States’ energy endowment. It nevertheless has a distinctive asset in its carbon market capable of creating both an investment signal and an industrial policy financial resource. The Commission’s ETS reform proposal therefore raises a strategic question: will Europe convert its carbon rent into clean industrial capacity, or weaken and divide it before the transition is financed?HighlightsCarbon revenue is precious because it is temporary. A successful ETS erodes its own tax base as emissions fall. Europe must turn this finite rent into durable productive assets before auction volumes contract.The reform expands gross financial capacity but pre-commits more of it. The €598.1bn Commission figure is a fixed-price valuation at a constant €150 per tonne, not a forecast or a national budget, and sits alongside EU funds, free allocation, removals and international credits.This paper uses corrected IMF scenarios to discuss the impact of this reform proposal on revenues. It shows a strategically large revenue range. Under the modelled proposed allocation path, revenue is €51.8-104.1bn in 2030 and €0.99-1.68tn over 2031-2040. The carbon-price path matters more than the free-allocation timetable.Yet slower auctioning still carries a real fiscal opportunity cost. Against the modelled current timetable, it reduces 2031-2040 revenue by €59.6bn on the €150 price path and €106.6bn on the €240 one.Weakening the ETS creates a double industrial-policy loss. It worsens the private business case for clean production while shrinking the common financial resource available to close the investment gap, pushing Europe back towards unequal national subsidies. More Allowances, More Revenue? The Industrial-Policy Stakes of the EU ETS Reform (11 pages)DownloadCopyright image : Ina Fassbender / AFPSharerelated content HeadlinesMay 2026Economic Security and Supply-Chain Resilience: Building the 2026 G7 AgendaRead the Policy Paper 07/10/2026 The EU ETS Is Also a Cornerstone of Europe’s Emerging Industrial Policy Joseph Dellatte 06/24/2026 [China Trends #26] - Energy Security First: What Hormuz and Chinese Sources... Joseph Dellatte, Michal Meidan, Rosalie Klein, Pierre Pinhas, Manon Anderson 02/10/2026 The EU ETS at a Crossroads: Competitiveness Concerns and Policy Scenarios Joseph Dellatte