EU ETS Review: Widening the gap between leaders and laggards

Research evidence excerpt

EU ETS Review: Widening the gap between leaders and laggards

Idea

July 17, 2026 04:01 PM GMT

Morgan Stanley & Co. International plc+MBuilding & Construction | Europe Cedar Ekblom, CFA

Equity Analyst

EU ETS Review: Widening the Cedar.Ekblom@morganstanley.comDaniel Khajenouri +44 20 7425-4623

Daniel.Khajenouri@morganstanley.com +44 20 7425-3065

gap between leaders and Rachel Fletcher, Ph.D.

Equity Strategist

Rachel.Fletcher@morganstanley.com +44 20 7677-4089

laggards

Building & Construction

Europe

Industry View In-Line

Key Takeaways

Incremental positive for EUA pricing. Positive for near-term sentiment for all

cement producers, in our view.

Investment Booster Fund benefits companies with advanced projects and

committed financing. We see Holcim and Heidelberg well place in our coverage.

Medium term (post 2031) new plans mean producers will need to invest to

receive free allowances. Again, front-footed players better placed.

We provide a simple worked example of how we think free allowances vs.

investment plans might work.

Our preferred name in EU cement is Heidelberg Materials.

Incremental positives for EUA prices: The EU has released proposed changes to

the EU ETS (link here). Our teams covering Carbon and Sustainability have written

on the topic. See: Deciphering ETS Review and EUA prices. On the near-term

outlook, the key has been how 400mt supply of EUA credits backing the

Investment Booster Fund would come to market. Not all EUAs will find their way

into the traded market with some allocated rather than auctioned. These dynamics

most likely deliver tighter S/D balances than we expected and support higher EUA

price, all else equal. On the linear reduction factor, this will fall from 4.4% (90mt

p.a.) to 3.7% for 2031-35 and 1.7% for 2036-40.