Analysts Slash EU Carbon Forecasts as ETS Reform Proposals Point to Looser Supply
European Commission proposals on free allowances, investment schemes and market reserve thresholds are driving analysts to cut EUA price forecasts through 2027.
ICE EUA Dec-rolling carbon allowances settled at €85.25 per tonne CO2 on Tuesday (2026-09-15), held below earlier levels by a widening set of European Commission reform proposals that analysts say will expand allowance supply through the end of the decade. Reuters reported on July 31 (2026-07-31) that analysts had lowered their EU carbon price forecasts for 2026 and 2027 after the Commission tabled its reform package.6
The scale of what is under consideration is broad enough that multiple price channels are exposed at once. Benchmark updates for free industrial allowances, a new investment booster scheme, the Industrial Decarbonisation Bank and potential Market Stability Reserve adjustments are all in play simultaneously. Analysts who cut forecasts in April (2026-04-30) pointed to uncertainty over future supply levels as the main pressure source; by July, they had more concrete detail to model.4,6
Veyt attached a specific number to one mechanism alone. A senior analyst at the firm told Montel on Wednesday (2026-05-20) that the ETS adjustment under consideration could cut carbon prices by roughly 13% over the following two years.1 That estimate interacts with an existing market buffer: when quotas exceed 833 million tonnes, auction volumes are automatically reduced by 24%. Any change to that threshold blunts the built-in supply brake.1
Energy Aspects identified a separate supply vector. The consultancy told Montel that the launch of the EU's Industrial Decarbonisation Bank and the ETS investment booster scheme together could bring more allowances into the market from next year, dampening prices.2 The two instruments compound rather than offset each other.
Free allocation benchmarks add further downward pressure. Analysts told Montel on Tuesday (2026-06-16) that updating the benchmarks governing free allowances to industry through 2030 was likely to loosen the ETS balance and weigh on prices.3 A committee of national governments is steering that process, which suggests member-state industrial interests could push allocations beyond the Commission's baseline assumptions.3
When the Commission revealed its broader package on Friday (2026-07-10), observers told Montel the proposals would prove "slightly bearish" overall while falling short of anything that would "fundamentally weaken" the scheme.5 A market that retains its integrity but runs with more supply is a different proposition from one that has been genuinely impaired, and that distinction matters for where sellers can push prices before confidence in the scheme creates a floor.
Four months of downward forecast revisions show how much of the reform narrative has already been absorbed. But the specific supply additions tied to the Industrial Decarbonisation Bank and the investment booster depend on timelines that have not been confirmed.2 If those instruments arrive later than analysts assume, part of the 2026 price weakness could reflect front-running of policy that lands softer or slower than modelled.
How member states respond through the benchmark committee process, and whether national industrial lobbies push allocations beyond Commission targets, is the next concrete variable to resolve.3