Analysts expect EU carbon prices to soar by 2027
Analysts expect EU carbon permit prices will soar by 2027 as policy measures shrink supply, while their forecasts for 2025 and 2026 were little changed, a quarterly Reuters survey showed on Friday.
The EU's Emissions Trading System (ETS) is Europe’s main tool for curbing emissions to meet its climate targets and forces manufacturers, power companies and airlines to pay for the carbon dioxide (CO2) they emit by surrendering carbon allowances.
The average analyst carbon price forecast for 2027, the first time participants in the survey have been asked about the period, was €111.14/ton, much higher than the current €62.50/ton price, a Reuters survey of nine analysts showed.
“We expect market participants to increasingly turn their attention to the upcoming supply squeeze in the market, 2027 is set to be a very tight year," said Haege Fjellheim, head of carbon analysis at Veyt.
"Amidst the overall fit for 55 framework that reduces supply of fresh allowances, the market stability reserve continues to eat into the remaining market surplus,” Fjellheim said.
The European Commission's fit for 55 framework aims to reduce the EU’s net greenhouse gas (GHG) emissions by 55% by 2030 from 1990 levels, while the market stability reserve is a mechanism to remove surplus permits from the market.
EU Allowances (EUAs) are forecast on average at €76.88/tonne for 2025 and €92.48/tonne for 2026, up 0.2% and down 1% respectively from forecasts made in July.
“In the near term, the carbon price is likely to continue to trade broadly in line with EU natural gas prices. That said, this linkage will weaken over time as the industrial sector takes over the mantle from the power sector as the key driver of emissions,” David Oxley, chief climate & commodities economist at Capital Economics, said.
Benchmark European gas prices have been rangebound over the past few weeks with market participants concerned over an escalation of the conflict in the Middle East and possible disruptions to supply.
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