Evolution of EUA Price Forecasts from 2024-2026+
Decreased Emissions Influence short term EUA Market Forecasts; Analysts predicting significant positive market transformations by 2026 and beyond.
Following the publication of record low emissions figures for 2023 within the EU's carbon market, Analysts have revised their price forecasts for European Union carbon permits (EUAs) for the years 2024 to 2026. However, long term expectations of a gradual strengthening in EUA prices take over as market adjustments to regulatory changes and sectoral expansions take fuller effect.
EUA Forecast for 2024-2026 📉
The revised average price forecast stands at 63.96 euros per metric ton for 2024, marking a steep 13.7% decrease from January projections. For 2025, the forecast is set at 74.00 euros, down 11.2%. These revisions reflect broader trends in the EU carbon market where emission reductions, particularly from power sectors driven by increased renewable energy outputs, are influencing market dynamics.
In early 2023, data from the European Commission pointed to a 15.5% drop in emissions covered by the EU Emissions Trading System (ETS), a record decrease facilitated by a surge in renewable energy production. This decline is projected to continue into 2024, with power emissions expected to register another significant year-on-year drop. Despite these bearish fundamentals, the benchmark EU carbon contract hovered around 66 euros a ton recently, nearly 20% lower since the beginning of the year.
The integration of the shipping industry into the ETS, requiring shipping firms to surrender permits for a percentage of their intra-EU voyages (40% in 2024, rising to 100% by 2026), introduces a new dynamic to the market. This regulatory expansion could offset some bearish pressures by increasing demand for EUAs from the shipping sector, although significant price impacts are not anticipated until closer to 2025.
EUA Positive Shift Forecasted for 2026+ 📈
Looking further ahead, the average price forecast for 2026 stands at 92.48 euros a ton, down 7.6% from the earlier forecast of 100.13 euros. This projection suggests a gradual strengthening in EUA prices as market adjustments to regulatory changes and sectoral expansions take fuller effect.
Analysts are forecasting a pronounced uptick in EUA prices starting from 2026. This expected rise is linked to a strategic shift in the supply dynamics within the European carbon market, a pivotal development for traders and policymakers alike. The European Commission's strategy to front-load the supply of EUAs up to 2026, as part of its broader Recovery and Resilience Facility aimed at funding the transition from Russian fossil fuels to cleaner energy sources, has temporarily increased market liquidity. However, this is set to change dramatically. From 2026 onwards, the cessation of this front-loading is anticipated to result in a significant tightening of available permits.
The Mechanics Behind the Market Shift
The crux of the matter lies in the supply-demand dynamics. The current phase of increased allowance availability is a temporary measure under the REPowerEU initiative, which aims to raise EUR 20 billion through the sale of over 250 million additional EUAs between 2023 and 2026. Despite this influx, the daily auction price has dipped significantly—from an average of over EUR 80 per tonne last summer to just under EUR 64 this month. This drop has necessitated even more EUAs to be brought to market to meet financial targets, further saturating the short-term market.
While emissions are projected to continue their decline, particularly in the power sector, the rate of allowance supply cuts is outpacing emission reductions. This scenario is setting the stage for a supply deficit as early as 2026. The upcoming years will see the market stability reserve unable to withdraw surplus EUAs from the market, indicating tighter market conditions.
The maritime sector's inclusion in the EU ETS from this year, coupled with the phased elimination of free allowances for airlines by 2026, is set to amplify demand. These sectors, traditionally not part of the ETS, will now contribute to the escalating demand for EUAs, pushing the market towards a supply deficit. By 2027, the annual deficit in EUAs could equate to a full year's supply, mirroring the shortfall levels experienced in 2022. This prediction outlines a future where the historical surplus, which has buffered the market since 2013, will be substantially depleted, propelling EUA prices upwards.
