EU carbon may need removals "safety valve" to cap price surge if CCS, hydrogen slip

EU carbon may need removals "safety valve" to cap price surge if CCS, hydrogen slip A Carbon Pulse-cited report warns the EU ETS could need to absorb carbon removals to prevent a price spike if capture and hydrogen rollout fall behind. The EU may have to fold carbon removals into its emissions trading system as a safety valve to head off a price surge if carbon capture and hydrogen deployment falter, according to a report published on Friday (2026-06-12).⁵ The case rests on how the ETS is built. Its annual cap shrinks every year, and the abatement meant to absorb that squeeze depends on technologies that have repeatedly slipped behind their timelines. If CCS and clean hydrogen do not arrive at the scale the bloc has assumed, the same emissions chase a shrinking pool of allowances, and the price has only one direction to move.⁵ EUA Dec settled at €78.62 in the latest print, a level that already prices meaningful scarcity and sits above where many industrial emitters budgeted.⁵ The report frames the valve as insurance against a disorderly spike rather than a softening of ambition. Allowing verified removals into the system would give the cap somewhere to flex if real-world abatement disappoints, capping the upside without abandoning the trajectory. The mechanism only bites if the underlying technologies underdeliver.⁵ That sits awkwardly against a louder worry this spring. The Oeko Institut warned that proposed ETS reforms could leave the system oversupplied until 2040 by pushing allowance availability beyond what is needed.² A senior analyst at Veyt said on Wednesday (2026-03-25) that an adjustment under consideration by the European Commission could cut carbon prices by about 13% over the next two years.⁴ So the market is being told two opposing stories at once. One set of reforms threatens to flood it with allowances and drag prices down. A separate failure of decarbonisation technology threatens to starve it of abatement and push prices up. Which force wins depends on policy choices the Commission has not yet finalised.^2,4 The fiscal weight behind the debate is not small. ICAP reported that EU ETS revenues rose 11% in 2025 to €43.2bn, accounting for 62% of all earnings raised from global carbon pricing schemes.¹ Those receipts fund member-state climate budgets, so the price level is now a line item governments rely on, not only a compliance metric. A weaker allowance market also feeds back into power. Carbon costs sit inside the marginal cost of fossil generation, so a softer EUA price lowers the carbon penalty on coal-fired output and narrows its disadvantage against gas in the switching stack, the opposite of what a tightening cap was designed to achieve.⁵ The hydrogen leg of the thesis is the most fragile. The entire surge scenario rests on clean hydrogen and CCS scaling on schedule, and neither has a track record that inspires confidence. Europe's wider green push has lost momentum: the Commission has already simplified its carbon border adjustment mechanism, excluding shipments under 50 tonnes so that 90% of originally obliged firms drop out while 99% of covered emissions remain.³ For traders, the live catalyst is the reform, not the surge. Consensus positioning leans bearish on EUA Dec on the expectation that the Commission's pending adjustment adds supply.⁴ The removal valve is a longer-dated hedge against a scenario that materialises only if abatement technology keeps missing.⁵ The signal sits with the Commission's reform proposal and how it treats both supply volume and any removals mechanism.^4,5 If the adjustment loosens the cap without a credible path for CCS and hydrogen, the bloc risks building in the oversupply now and the price spike later. The two warnings circulating this spring are not really in conflict; they describe the same instrument failing at different times.^2,5