EU ETS Architect Jos Delbeke Says €75/mt EUA Price is “Fair”
The European carbon price level of €75 ($86.9)/metric ton during the past two months is “fair” and strikes a balance between incentivizing decarbonization and avoiding an excessive burden on industry, EU carbon market architect Jos Delbeke told OPIS on Tuesday.
Delbeke, who worked at the European Commission for more than 30 years, including as director-general for climate action, also said that a slower emissions-reduction trajectory in the EU Emissions Trading System (ETS) could remove the need for price intervention through the Market Stability Reserve.
The comments follow an announcement from the European Commission at a policy roundtable last week suggesting that the linear reduction factor, which determines the annual decline of the EU ETS emissions cap, would slow down. The change would extend EU carbon allowance (EUA) issuance beyond 2040.
Because a slower reduction factor has been discussed since February — when European Parliament lawmaker Peter Liese first floated the idea — the market reaction to the Commission’s latest comments remained relatively muted.
However, the increase in auction volumes for the rest of 2026, announced by the Commission on May 13, weighed on near-term prices. EUAs fell by more than €1.5/mt on the news but remained within the established €72-€78/mt range.
EUA prices started the year near the €90/mt mark but entered a downtrend after U.S. President Donald Trump threatened to seize Greenland in February. In March, a coalition of countries led by Italian Prime Minister Giorgia Meloni called for a temporary suspension of the EU ETS following energy price hikes that were triggered by the escalation of the Middle East conflict.
Geopolitical impact
A prolonged conflict in the Middle East could be a “double-edged sword” for the European carbon market, Delbeke said. On the one hand, it is boosting investment in renewable energy and electrification in Europe, but further energy price hikes could also lead to increased coal use.
Delbeke noted the transformation of the EU ETS from a standalone environmental tool into a key component of EU policy.
“In its first 20 years the EU ETS was perhaps a self-standing instrument and now it’s [becoming] part of a wider industrial policy where trade and competition concerns are quite important.”
“We reduced emissions by more than 50% in 20 years under the EU ETS…The low-hanging fruit has been captured. Now the second 50% is going to look quite different,” Delbeke said.
He noted that emissions from the power sector that are “quite monolithic” have been reduced “tremendously,” while the remaining reductions must come from a much more diverse industrial sector.
“That is a completely different set of questions and that is why the ETS review that is upcoming is so complicated,” he continued.
The EU ETS Review is scheduled to start in July 2026.
EU ETS Review
The linear reduction factor (LRF) and the Market Stability Reserve (MSR), which is also due for review this year, are currently among the most widely discussed components of the EU ETS. Delbeke emphasized that the two should be calibrated together.
“The linear reduction factor is the most important variable to fix,” Delbeke said, suggesting that the emissions cap could be updated to fall by 3.4% annually, compared with the current LRF of 4.3%, which is set to increase to 4.4% in 2028 – an idea first floated by Liese earlier this year.
“Most of us hope that the linear reduction factor is going to be calibrated in the right manner by the European Commission, in which case the market stability reserve is going to stop playing its role,” Delbeke said.
The MSR is a legislative tool that adjusts the supply of carbon allowances to keep the market balanced. It was first introduced in 2018 to tackle the oversupply of EUAs.
“The MSR took more than three billion allowances out of the market over time and neutralized them,” Delbeke said. “So, that’s why we see a price today of around €75 and not around the €10 or €20 we had in the past,” he continued.
Balancing the supply of allowances
Given the current opposite problem of limited liquidity, the MSR should address the shortage, not the oversupply, according to Delbeke.
In April, the Commission announced plans to stop the automatic cancellation of EUAs held in the MSR above 400 million allowances.
Currently, allowances are released from the MSR only if the total number of allowances in circulation (TNAC) falls below 400 million, returning 100 million EUAs to auction volumes. Recent discussions have revolved around introducing a dynamic threshold, whereby MSR intake and release levels would adjust as the market shrinks.
“I see the MSR developing more as an insurance against unexpected events,” he said, pointing out that cheaper low-carbon technologies could reduce demand for EUAs by lowering emissions faster, while more expensive nuclear power, for example, could increase reliance on fossil fuels and raise demand for allowances.
“There are many unforeseen variables that are going to happen in the coming 10-15 years, and the market stability reserve is the vehicle that could be used to cope with these unexpected impacts on the carbon market,” Delbeke said.
–Reporting by Nia Simeonova, nsimeonova@opisnet.com