Analysts cut EU carbon price forecasts on policy reforms

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.

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.

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.

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.

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.

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.

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.

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.


- Reuters