Discussions on reforming the ETS are continuing in the EU

According to ICE, futures prices for CO2 emission allowances (EUAs, December 2026 contract) stood at €75–79/t in the second half of May.

Overall, the dynamics of the European carbon market during the month were driven by volatility in energy prices due to the conflict in the Middle East, discussions regarding EU ETS reform, and expectations of changes in the free allocation of allowances to industry.

On May 26, European carbon prices hit a high of €78/t. As Carbon Pulse notes, the market largely ignored news from the Middle East, driven by a 6% increase in the price of UK Allowances (UKA) from the previous day, reaching £56.67/t.  There is now renewed optimism that the EU and the UK may reach an agreement on merging carbon markets at a summit tentatively scheduled for July of this year. Additionally, sentiment regarding the reform of the EU ETS has improved. On May 27, the price of EUAs exceeded €79/t amid these expectations.

Meanwhile, discussions on reforming the ETS continue in the EU. Currently, six countries are asking the EU to protect heavy industry from carbon emission costs. In a letter reviewed by the FT, the Czech Republic, Bulgaria, Poland, Romania, Greece, and Slovakia called for an increase in the number of carbon allowances within the emissions trading system. They argue that the bloc’s climate policy must adapt to geopolitical realities and extremely high energy prices. Additionally, they note that middle- and low-income member states have been particularly hard-hit by the energy crisis.

A mid-term review of the ETS aimed at modernizing the system is expected by July 2026.

As a reminder, in the first half of May, European carbon prices stood at €74–77/t.