The European carbon market is entering a significant structural shift that could see prices for EU Allowances (EUAs) rally nearly 40% over 2026. According to the latest projections from market intelligence provider Veyt, the average price of carbon is expected to reach €104 per tonne in 2026, a sharp increase from the €75 average recorded in 2025.
A young European forest in the foreground growing into a mature forest in the background. AI generated picture.
The primary driver behind this bullish outlook is a dramatic contraction in the supply of available allowances. Analysts estimate that weekly auction volumes will fall by roughly 21% year-on-year due to scheduled regulatory changes, including the rebasing of the EU ETS cap and adjustments to the Market Stability Reserve (MSR).
However, the ‘volume wildcard’ that could disrupt the market further is the looming conclusion of the RePowerEU program. To fund the EU’s pivot away from Russian fossil fuels, the European Commission front-loaded allowance sales originally intended for later in the decade. Because this program is tied to a specific revenue target rather than a fixed volume, the recent price recovery is accelerating its conclusion.
‘Unlike a volume-based programme, RePowerEU operates on a €20 billion revenue target, meaning auctions will be suspended as soon as that threshold is reached,’ explained Henry Lush, carbon analyst at Veyt. If prices remain near €90, these sales could halt as early as late April, cutting auction volumes by as much as 45% compared to 2025 levels.
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While supply tightens, demand from industrial sectors—including metals, cement, and chemicals—is expected to stabilise. After several years of declining emissions, Veyt forecasts that industrial output will level off, with emissions dropping by less than 1% in 2026. Conversely, the power sector is expected to see more significant reductions as natural gas remains more cost-effective than coal and renewable energy continues its rapid expansion.
‘And the continuation of the buildout of renewables is going to eat quite significantly into more (carbon) intensive power (sources)’, Lush noted.
Adding to the upward pressure is the record-high participation of investment funds. Financial players have built a net long position of approximately 125 million EUAs, signalling strong confidence in future price appreciation. Lush warned that while the market is ‘open for profit-taking at current levels’, the ‘overall picture is pretty clear that investors see upside potential for 2026.’
The remainder of 2026 will be a pivotal period for policy. As the EU sets its sights on 2040 green targets, stakeholders are closely watching how the burden of abatement will be shared between the ETS and other sectors.
According to Anders Nordeng, senior carbon analyst at Veyt, ‘The key files for carbon market participants this year will be how the 2040 abatement efforts will be split between ETS and non-ETS sectors, [and] what the EUA supply trajectory should be beyond 2031.’
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As the 2026 supply squeeze drives compliance costs toward record highs, the value of high-integrity, transparent carbon assets has never been more critical for a balanced portfolio. At Green Earth, we anticipated this maturing market landscape by weaving rigorous verification and long-term permanence into the design of every project. For project developers and sustainability officers navigating this year’s tightening market, these ratings indicate that high-impact environmental restoration and long-term financial value are being delivered side-by-side.
