EU Carbon Market Slumps to Seven-month Low on EU ETS Policy Uncertainty
European Union carbon prices have slumped by almost a quarter from a mid-January peak, while U.K. carbon allowances have fallen by almost two fifths over the same period, amid domestic and geopolitical uncertainty coinciding with potential EU Emissions Trading System (ETS) policy reform.
The sharp fall means that European Union carbon allowances (EUAs) have returned to the €60-80 range that has predominated over the past two years. On Monday, OPIS assessed the benchmark December 2026 EUA at €69.820/mt, down €22.96 from its Jan. 15 high.
UK carbon allowances (UKAs) have seen a much steeper decline, with the benchmark December 2026 UKA falling £21.65 to a 10-month low in less than three weeks. OPIS assessed the allowance at £46.065/mt on Monday.
“Volatility has been observed broadly, not only in carbon markets but in equity indices, as well,” Žiga Zagorc, a carbon trader at Slovenia-based company, said to OPIS this week. Zagorc pointed to “political risks” as the main drivers
behind the sell-off in both EUAs and UKAs.
Leaked documents related to EU carbon market policy, as well as remarks by senior EU politicians, have flagged a potential slower pace for phasing out free carbon allowances for operators in several European industrial sectors, exerting downward pressure on prices.
At the beginning of the month, senior EU officials said that the EU ETS could be extended beyond 2039, with companies continuing to receive free allowances beyond the current cut-off period – a move that would also weaken the bloc’s ambition to reach net-zero carbon emissions by 2050.
German Chancellor Friedrich Merz subsequently alluded to the possibility of revising EU ETS policy at an industry summit in Antwerp last week. “If [reducing carbon emissions and helping the industry transition to pollution-free production] is not achievable and if this is not the right instrument, we should be very open to revise it, or at least to postpone it,” said Merz.
Peter Liese, a German Member of the European Parliament and environmental lead of the European People’s Party, the parliament’s largest party, expressed a similar sentiment: “European industry must be relieved of the burden of emissions trading in order to help companies in this difficult economic and geopolitical situation and to secure jobs.”
Both the EUA and UKA slides began after Jan. 15, following U.S. President Donald Trump’s threats to seize Greenland and later to invade Iran. President Trump had previously helped to spark a large sell-off in EUAs when he first announced major tariffs in April 2025, which prompted a peak-to-trough slump of 27.2% for benchmark prices.
The recent downward slide for UKAs has been steeper than previous declines, with analysts emphasizing sterling weakness and political instability in the U.K.
The benchmark December 2026 UKA hit a high of £73.89 after an announcement that negotiations on linking U.K. and EU carbon markets would start sooner than expected. Recent developments, however, have significantly widened the gap between the two allowances.
The next formal review of the EU Emissions Trading System is expected in the third quarter of 2026, when the European Commission will assess the functioning of the market and could propose legislative adjustments, a process closely watched by market participants for its potential impact on annual allowance supply, free allocation rules, and price dynamics.
–Reporting by Nia Simeonova, nsimeonova@opisnet.com; Editing by Anthony Lane, alane@opisnet.com