Analysts Lower EU Carbon Price Forecasts Citing Policy and Market Uncertainty
EU Carbon Market Outlook and Influencing Factors
By Susanna Twidale
LONDON, April 30 (Reuters) - Analysts have significantly cut their forecasts for prices in the European Union's carbon market for the next couple of years, due to uncertainty over proposed policy changes and future supply levels.
Overview of the EU Emissions Trading System (ETS)
The EU's Emissions Trading System (ETS) is Europe's main tool for curbing emissions. Under it, manufacturers, power companies and airlines need to buy a CO2 allowance for every ton of CO2 they emit.
Analyst Forecasts and Market Performance
Updated Price Forecasts
According to a survey of 10 analysts, EU allowances are forecast to average 80.61 euros ($94.24) per metric ton in 2026 and 93.29 in 2027, down from the 92.65 euros and 107.29 euros respectively for forecasts made in January.
Recent Market Volatility
The market has had a volatile start to 2026, with the benchmark EU carbon contract currently trading around 74 euros/ton, some 15% lower than the beginning of the year.
Key Drivers of Market Uncertainty
Policy Uncertainty and Supply Changes
The analysts said uncertainty over policy measures has weighed on the market.
"EUA price dynamics in 2026 will be mainly shaped by policy-driven supply changes," said Yehor Melakh, analyst at ClearBlue Markets.
“While the market remains fundamentally short in 2026, this tightness is being partially offset by the ongoing unwind of speculative positions and rising expectations of regulatory intervention,” he said.
Proposed Policy Changes
The European Commission proposed changes to the ETS earlier this month, after pressure from governments including Italy to amend the system to help curb soaring energy prices triggered by the Iran war.
Future Overhaul and Climate Targets
Separately, the Commission is expected to propose a broader overhaul of the ETS, to align it with the bloc's 2040 climate target. That proposal is due on July 15.
Economic and Political Risks
Along with political risk, Serafino Capoferri, global carbon strategist at Macquarie Group, said economic damage due to the conflict in Iran could impact permit demand.
“The main downside risk remains demand destruction in the event of a prolonged energy shock that curtails industrial activity, reducing both power-sector emissions and direct industrial emissions,” he said.
Long-Term Price Outlook
The average EUA forecast for 2028 was down 15.7% at 93.52 euros/ton.
($1 = 0.8554 euros)
(Reporting By Susanna Twidale; Editing by Sharon Singleton)
