Europe's Carbon Price Needs More Than Scarcity to Drive Investment
A Montel analyst argues that EUA prices alone cannot decarbonise industry without parallel infrastructure build-out and targeted public finance.
The premise of Europe's carbon market is straightforward: make pollution expensive enough and industry will invest in cleaner alternatives. Josephine Steppat, senior energy analyst at Montel Energy Brainpool, challenged that logic in a July 1 (2026-07-01) analysis, arguing that the ETS can only function as intended if governments simultaneously deploy faster infrastructure and directed capital — scarcity of allowances is necessary but not sufficient.5
That argument lands as Brussels prepares to add supply to the market. Energy Aspects warned in May (2026-05-21) that the EU's Industrial Decarbonisation Bank and ETS investment booster scheme could release additional allowances into the market from next year, putting downward pressure on prices. If that intervention reduces the price signal before the accompanying infrastructure is in place, the window for industrial investment decisions narrows.1
The tension is not new, but the timing sharpens it. A senior European Commission official, speaking at a conference in late May (2026-05-20), acknowledged that carbon price volatility driven by political statements had already created investment uncertainty. "Sometimes political statements have moved the carbon price," the official said, calling for "credible" price management to give industry the predictability it needs for long-term commitments.2
Steppat's core claim, as summarised by Montel, is that decarbonisation stalls when the price signal outpaces the available infrastructure. An industry facing high EUA costs but insufficient grid capacity, hydrogen supply, or industrial heat alternatives cannot respond constructively — it simply absorbs costs or lobbies for relief. The risk is that carbon pricing generates revenue for the EU without generating the physical transformation it is supposed to incentivise.5
The scale of what Europe needs is not in dispute. Europe's gas system has LNG regasification capacity of around 1,600 TWh, roughly 145 bcm per winter season, and storage capacity of approximately 1,131 TWh, according to GIE data from the spring. That infrastructure was built to handle gas security rather than decarbonisation. Reorienting capital at the pace the 2040 target implies — the Commission proposed a 90% emissions reduction — requires a different deployment tempo than Europe has managed.3
The power market underlines the structural challenge. Gas-fired generation set the price in 89% of European electricity hours in 2026, according to Ember calculations, compared with just 15% in Spain, where renewable penetration is higher. That dispersion illustrates the extent to which carbon price signals pass through gas-to-power economics before reaching the broader economy. Where renewable buildout has been fastest, the gas price relationship — and by extension the carbon price incentive — is already weakening.4
ICE Endex TTF front-month traded at €44.88 as of Monday morning (2026-07-06), within a range that keeps the coal-to-gas switching calculation relevant but not extreme. At these gas prices, EUA costs remain a meaningful factor in European generation dispatch decisions. Whether that signal is sufficient to drive industrial capital allocation is the harder question Steppat is raising.5
The EU initiatives scheduled for next year complicate any firm answer. If the Industrial Decarbonisation Bank directs public finance toward sectors where carbon pricing alone cannot work — where the investment case depends on infrastructure the private sector will not build unilaterally — then the combination of price signal and public support could form a coherent policy package. If the additional allowances simply dilute the price without equivalent infrastructure delivery, the system loses both revenue and incentive at once.1
The practical test will come in how the investment booster scheme is structured and what conditions are attached to allowance release. That detail has not yet been set. For industrial companies trying to make 15-year investment decisions in cement, steel or chemicals, the ambiguity itself is part of the problem.