July 17, 2026 | Market Trends for the NQC Community

EU revises EUDR scope and prepares carbon market shifts

We outline three updates reconfiguring global procurement and compliance targeted scope modifications to the EU Deforestation Regulation (EUDR), a strategic overhaul of the EU Emissions Trading System (ETS), and the launching of public consultations on Carbon Border Adjustment Mechanism (CBAM) certificate trading.

Key takeaways

    • EUDR scope changes: The European Commission has updated Annex I of the EUDR to remove complex derived products like leather and vehicle seats, while shifting the deadline for newly added derivatives to December 2027.

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    • Proposed carbon market flexibility: Internal European Commission drafts reveal a planned ETS overhaul that could extend the industrial emissions runway into the 2040s and prolong free carbon permit allocations to shield competitiveness.

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    • CBAM infrastructure consultation: A four-week public consultation has opened to finalise the rules, system interoperability, and declarant fee structures governing the centralised purchase and storage of CBAM certificates.

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Commission adjusts EUDR product scope and unveils technical parameters for compliance data

The European Commission has adopted two critical measures designed to clarify and streamline the rollout of the EU Deforestation Regulation (EUDR) ahead of its looming application dates.1 Consisting of a new Delegated Act and an Implementing Act, these updates refine product definitions and establish the technical baseline for digital data submission.

Targeted scope refinements

The Delegated Act updates Annex I of the regulation to simplify compliance boundaries for downstream industries. Following extensive stakeholder feedback, the Commission has removed several derived products from the regulation's immediate scope:

  • Exclusions from scope: Cattle hides, skins, leather, re-treaded tires, articles of vulcanised rubber, conveyor or transmission belts, and motor vehicle or aircraft seats have been officially removed.
  • New product additions: Conversely, the update adds soluble coffee, frozen cattle tongues, and specific palm oil derivatives to the scope. To allow these specialised food and chemical supply chains adequate time to build tracing pipelines, these newly added products will not become subject to the regulation until 30 December 2027.

The underlying list of core commodities covered by the EUDR remains completely unchanged; these modifications apply strictly to products derived from them.

Technical rules for data submission

Concurrently, the Implementing Act sets out the technical framework governing the EUDR Information System. The updated interface introduces concrete operational simplifications requested by industry groups, including simplified declarations for micro and small primary operators alongside updated technical specifications for automated Application Programming Interfaces (APIs) to handle large-scale data pipelines.

The core regulation will apply from 30 December 2026 for large and medium-sized operators. Micro and small enterprises gain an extended runway until 30 June 2027 (unless already covered under legacy EU Timber Regulations).

EU drafts flexible ETS overhaul, planning slower carbon cuts to protect industrial competitiveness

In a significant shift in tone, internal drafts from the European Commission suggest the bloc is planning to inject greater flexibility into its cornerstone carbon market to shield European industrial firms from international margin pressures.2

The forthcoming proposal, scheduled for formal publication on 17 July, intends to align the Emissions Trading System (ETS) with the bloc's target of a 90% emissions reduction by 2040 while actively addressing competitiveness anxieties.

Regulatory changes by the numbers

90%
The targeted reduction in overall EU emissions by 2040, which the upcoming Emissions Trading System (ETS) overhaul aims to align with.
28
Days of public consultation opened by the European Commission for feedback on the new CBAM certificate sale and registry rules.
4.3%
The current mandatory annual rate at which companies must taper their emissions under the ETS, which regulators plan to adjust in the upcoming overhaul.

The proposed flexibility mechanisms

According to Commission officials, the structural adjustments aim to ease the immediate financial burden of decarbonisation on heavy industry:

  • Extended emissions runway: The revision will propose letting companies keep emitting CO2 into the 2040s. Under current legislation, the ETS cap mechanics would effectively choke off allowable industrial emissions by 2039.
  • Lowering the linear reduction factor: Regulators plan to slow down the annual rate at which companies must taper their emissions, adjusting the current mandatory reduction pace of 4.3% per year.
  • Extended free carbon permits: The draft outlines a framework to grant industries more free CO2 permits in exchange for verifiable investments in domestic European decarbonisation infrastructure.
  • CBAM protection alignment: Crucially, this includes finding an administrative route to extend free CO2 permit allocations for industries covered by the Carbon Border Adjustment Mechanism (CBAM) past the original 2034 hard stop phase-out date.

While the EU remains publicly committed to long-term decarbonisation, this draft signals a clear realisation that the rapid phase-out of free permits risks driving industrial flight. Downstream procurement teams should expect a softer, more extended cost curve for carbon pricing than originally budgeted for the next decade. 

Public consultation opens on CBAM certificate trading and registry fees

To further its carbon border infrastructure, the European Commission has opened a four-week public consultation on the rules for purchasing and redeeming CBAM certificates.3

Running from 9 July to 6 August 2026, the consultation invites industry stakeholders to review the procedural mechanics that will dictate how importers financially settle their embedded carbon obligations.

The upcoming delegated regulation establishes three primary operational rules:

  1. The Common Central Platform (CCP): Detailing the exact processes for purchasing, pricing, and redeeming CBAM allowances directly on the centralised platform.
  2. System lifecycle interoperability: Mapping the data exchange and lifecycle of allowances as they sync between the CCP trading desk and the primary CBAM registry where compliance holdings are securely stored.
  3. Declarant fee structures: Laying down the specific transaction and administrative fees that authorised CBAM declarants must pay when executing purchases on the platform.

 

Navigating regulatory fluidity

 

References

  1. EUDR Scope and Technical Tools Update: European Commission, Directorate-General for Environment. (13 July 2026). Commission updates product scope and tools to support EUDR
  2. ETS Overhaul and Carbon Market Flexibility: Reuters. (8 July 2026). EU plans slower CO2 cuts, more free permits for industry in carbon market overhaul
  3. CBAM Certificate Public Consultation: GMK Center. (9 July 2026). The European Commission has launched a public consultation on the rules governing the sale of CBAM certificates