Global Commodities: EU ETS reform: More uncertainty than supply

Research evidence excerpt

Global Commodities: EU ETS reform: More uncertainty than supply

Global Commodities

15 July 2026 Citi Research

Overall, we believe the volume ultimately reaching the market is likely to be lower

than the headline 400Mt. Nevertheless, for modelling purposes, we analyze two

scenarios in which the full 400Mt is deployed either over 3 years or over 5 years, on

a pro-rata basis from Sep’27 onwards. Greater clarity is expected around Sep’26.

At the same time, the EU Commission aims to reinforce the stabilizing role of the

MSR. Measures reportedly under consideration include dynamically declining

absorption and release thresholds of the EU ETS’s stabilization mechanism

(Bloomberg, 25 June 2026), both falling by 4% per year and a reduction in the MSR

intake rate from 2028 onwards. We also see a meaningful possibility that the EU

Commission proceeds with a one-off reduction of the upper threshold of around

200Mt in 2028 to reflect changes to the TNAC calculation that would incorporate

cumulative net aviation demand between 2012 and 2023.

The interaction between the Investment Booster, the redesign of the MSR, and

the TNAC recalculation is therefore far more important than the headline 400Mt

of additional supply itself. Additional allowances do not mechanically translate

into a larger market surplus if the MSR parameters and the TNAC calculation are

simultaneously adjusted to absorb a meaningful share of both existing and

incremental free float of allowances.

Our scenario analysis highlights the wide range of potential outcomes. Under the

current framework, we estimate a cumulative deficit of 315Mt over 2026–2030. In

the most bullish scenario for EUA prices, we assume that the Investment Booster is

distributed over five years, the EU Commission implements a one-off MSR