Published by Global Banking and Finance Review
Posted on July 16, 2025
By Susanna Twidale
LONDON (Reuters) -Analysts have kept their forecasts for prices in the European Union’s carbon market roughly steady with the spectre of tariffs from the United States and weak industrial output weighing on expectations.
The EU's Emissions Trading System (ETS) is Europe’s main tool for curbing emissions. It forces manufacturers, power companies and airlines to pay for the carbon dioxide they emit by surrendering carbon allowances.
According to a survey of ten analysts, EU Allowances (EUAs) are forecast to average 73.54 euros/metric ton for the third quarter of 2025, slightly down from the 76.10 euros/metric ton forecast made in April.
“EU carbon prices have struggled through 2025 due to geopolitical uncertainty and trade turmoil, which have limited upside potential”, said Veyt carbon market analyst Henry Lush.
Trade tariff announcements from the United States have stoked fears of stalling economic growth in Europe which could dent industrial output and along with it demand for carbon allowances.
The benchmark EU carbon contract traded at 71.30 euros a metric ton on Wednesday, down around 15% from 2025's intra-day peak of 84.50 euros/ton in late January.
The average forecast for 2025 was 75.15 euros/ton, slightly up from 74.89 euros/ton.
All the analysts surveyed expected carbon prices to rise in the coming years as the cap on the amount of emissions that a sector, or group of sectors, can produce decreases under the ETS.
“The market should get substantially tighter from 2026, with both auction and free allocation supply dropping away that year. Investors should start to price in some of that upcoming tightness as we get closer to 2026,” said Energy Aspects analyst Ben Lee.
Free allocations are given to businesses to help them compete with international competitors that are not subject to the same carbon costs. However, these will be reduced from next year when the EU launches its carbon border tax forcing importers to pay equivalent carbon costs.
The average EUA forecast for 2026 was 91.08 euros/ton, down from 91.37 euros/ton in April. The average forecast for 2027 was 108.70 euros/ton, down from 109.62 euros.
(Reporting by Susanna Twidale; Editing by Kirsten Donovan)
