Analysts have marginally increased their forecasts for European Union carbon allowance prices over the next two years, while cautioning that price volatility is likely to persist through 2026, with carbon markets remaining closely linked to movements in European gas prices, according to a report by Reuters.
Based on a survey of 10 analysts, EU allowances (EUAs) are now expected to average €92.65/mt in 2026 and €107.29/mt in 2027. These figures represent slight upward revisions from October forecasts of €91.11/mt for 2026 and €106.94/mt for 2027. For 2028, the average forecast stands at €110.90/mt, broadly unchanged from previous estimates.
Volatile start to 2026 amid energy market pressures
The EU carbon market has experienced a volatile start to 2026. Benchmark EUA prices are currently trading around €84/mt, having reached an intraday high of €93.80/mt on January 15, the highest level recorded in nearly two and a half years.
In the near term, analysts expect EUA prices to continue tracking developments in European gas markets. European benchmark gas prices have risen by around 40 percent since the start of the year, driven by low storage levels and supply disruptions linked to cold weather in the US affecting LNG production and exports.
Gas price correlation to dominate near-term carbon pricing
Market participants broadly agree that, throughout 2026, EUA price movements will remain heavily influenced by short-term energy fundamentals rather than longer-term climate policy drivers. Elevated gas prices increase coal-to-gas switching incentives and raise power sector emissions, thereby boosting demand for carbon allowances.
As a result, analysts caution that EUA price volatility is likely to remain elevated as long as gas markets remain tight and sensitive to weather-related supply shocks.
Structural tightening expected to drive prices higher from 2027
Looking further ahead, analysts expect a gradual shift in the underlying drivers of the EU carbon market. As free emissions allowances are progressively phased out for industrial sectors under the EU Emissions Trading System, demand for EUAs is expected to increasingly reflect the actual cost of decarbonisation technologies rather than short-term fuel price fluctuations.
Norway-based research firms Rystad Energy and Veyt both highlighted that shrinking annual emissions caps and reduced free allocation will structurally tighten the market over the coming years.
According to analysts, this tightening is expected to support a sustained upward trend in carbon prices from 2027 onward, even as short-term volatility persists in the interim.
