Batteries make money on the gap between cheap and expensive hours. Those expensive hours are set by the last coal or gas plant needed to meet demand, which bids its fuel cost plus the cost of its carbon emissions. That carbon cost is priced by the EU Emissions Trading System, and for a lignite plant today it is over 90% of the total.

This has inevitably brought the scheme under increasing scrutiny from EU nations that have had slower energy transitions and remain reliant on coal, lignite, or gas. They point to the high cost being passed through to consumers and industry, negatively impacting inflation and industrial competitiveness.

From a battery business case perspective, however, the higher prices set in the evening are what provide the spreads needed to finance a battery. An easing of the EU ETS will be a net negative for battery owners.

But how exposed is each market, given the very different generation mixes and decarbonisation trajectories that Spain, Italy, Germany and Poland have? To find out, we put the Commission's own proposal through the model behind our European forecast, which significantly lowers the long-term EU carbon price. Every one of the four markets loses between 5% and 9% of total BESS revenue. The size of the loss depends more on how a battery can pivot its revenue streams than generation mix or rate of decarbonisation.

Key takeaways

• Total BESS revenue fall between 5 and 9% depending on the market. Choosing where you build can provide some diversification, but it cannot remove the exposure.
• Do not size this risk from a power price forecast. Italian prices fall the most of the four, but Italian spreads fall the least, so a price curve alone can overstate revenue contractions.
• Intraday retrading softens the blow to day-ahead spreads. Germany, Italy and Spain keep 1.9 to 2.4 percentage points of their spread shortfall whilst Poland keeps none.
• Carbon prices see the biggest fall from baseline in the 2040s, where by then much of the remaining coal in Poland and Germany is already gone, limiting the impact.

How does the EU ETS set a price, and what would change?

The EU ETS is a traded market. The system caps total emissions from power, industry and aviation, then issues one allowance for every tonne inside that cap. Emitters have to hand back an allowance for each tonne they emit, and they can buy and sell them, so allowances trade at a market price.

The price is set through scarcity: how tight the cap is against how much the covered sectors actually want to emit. The cap falls by a fixed percentage every year, which is what has pushed the price up since 2005.

Alongside it, the Market Stability Reserve takes allowances out of circulation when too large a surplus builds up, and cancels the part of that surplus which sits above a set threshold.

On 17 July 2026 the Commission published its proposal to revise the Emissions Trading System for the period after 2030.

Two changes create this gap:

• A slower annual cut leaves more allowances in circulation each year than the current trajectory. Because allowances can be banked, every one of those years adds to the stock available later.
• The reserve takes half as many allowances out of circulation as it does today, so more of the surplus stays available to be bought.

By 2040 both effects have been building for over a decade. The cap now runs out in the late 2040s instead of 2039, so the same demand is bidding for a larger pool of allowances.

How much of that reaches a battery's revenue?

That carbon curve is what we ran through the model, and it narrows day-ahead spreads in all four markets. A battery does not lose the full amount, though, because falling revenues from DA spreads are made up for by other energy markets.

As spreads fall, a battery optimiser would look to reschedule its charges and discharges to suit the new price shape. Where a market has both a day-ahead and an intraday market, it can shift volume between them. And in the earlier years, ancillary services carry no carbon cost, so that part of the revenue stack is untouched.

To size the rest, we ran matched pairs of dispatch models for a 50MW four-hour BESS in each market. One runs on baseline prices, one on the lower-carbon prices, with degradation modelled on both sides.

The effect is worst for Poland, for three reasons. Its spread falls the furthest of the four. Its revenue stack shifts towards day-ahead as ancillary services saturate, and whether Polish intraday liquidity grows is still an open question.

Being able to trade the same energy twice is what limits the damage. Germany, Italy and Spain all trade intraday, and each keeps roughly two percentage points of its spread fall, giving up about 6% of wholesale revenue against spread falls of 8%. Read more on intraday trading for batteries.

Poland, on the other hand, keeps nothing. Its 10.1% spread fall passes straight into wholesale revenue, because Polish intraday is not yet a battery revenue stream in our Poland forecast.

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When does the carbon impact actually arrive?

A battery's exposure to the carbon price is not steady across the forecast. As the carbon price moves further from the baseline trajectory, decarbonisation across European markets also increases, cancelling out some of the impact.