EU Emissions Trading System
The EU's cap-and-trade carbon market covering industrial emitters and power generators.
Last refreshed: 29 May 2026 · Appears in 1 active topic
Does the EU carbon price now help or hurt European industrial competitiveness?
Timeline for EU Emissions Trading System
repriced free-allowance allocations for 2026-2030 towards industrial competitiveness
European Energy Markets: EC benchmark revision slashes EUA consensus 13%- What is the EU carbon price in 2026?
- EU ETS allowances (EUAs) traded around EUR 70-80 per tonne in 2026, with the December 2026 contract settling near EUR 78.75/tonne in late May. The first CBAM certificate price was set at EUR 75.36 on 7 April 2026.Source: EEX; Reuters; European Commission
- How does the EU ETS affect gas and electricity prices?
- Gas-fired power stations must hold EUAs for their CO2 emissions, so the carbon price is baked into the cost of each MWh they generate. With EUAs near EUR 75/tonne, CCGT marginal costs in Germany exceeded day-ahead electricity prices in May 2026, turning the clean spark spread negative.Source: Lowdown European Energy Markets Update 11
- What is CBAM and how does it relate to the EU ETS?
- CBAM (Carbon Border Adjustment Mechanism) entered full compliance on 1 January 2026. It requires importers of certain goods — steel, aluminium, cement, fertilisers, hydrogen, electricity — to buy certificates priced at the prevailing EUA rate, extending the EU carbon price to non-EU producers and replacing free ETS allowances for those sectors.Source: European Commission; ICAP
- Why did the EU revise ETS benchmark values in 2026?
- On 11 May 2026 the European Commission published new free-allowance benchmark values for 2026-2030, increasing allocations and cutting industry compliance costs by roughly EUR 4 billion. The revision was a deliberate competitiveness measure, partly in response to pressure from US tariff policy.Source: European Commission; Reuters
- How fast is the EU ETS cap shrinking?
- The cap on total emissions fell by 4.3% per year from 2024 onwards under revised Fit for 55 rules. Supply of allowances in 2026 was approximately 8% lower than in 2025. The Market Stability Reserve further adjusts supply by withdrawing allowances when the total number in circulation is above a threshold.Source: European Commission; Homaio EU ETS guide
Background
The EU Emissions Trading System (EU ETS) is the European Union's primary instrument for reducing greenhouse gas emissions from industry, power generation, and aviation. Established in 2005 under Directive 2003/87/EC, it operates a cap-and-trade model: a total limit (the cap) is set on aggregate emissions from covered installations, and companies must hold enough EU Allowances (EUAs) to cover their verified annual emissions. Allowances are either auctioned or allocated free of charge, with the cap declining by 4.3% per year from 2024 onwards under the revised Fit for 55 rules, creating structural upward pressure on the carbon price.
In 2026, EUA prices have traded between roughly EUR 70-80/tonne, with the December 2026 contract settling near EUR 78.75/tonne in late May and the first CBAM certificate price set at EUR 75.36 on 7 April 2026. The European Commission on 11 May 2026 published revised benchmark values for free allowance allocation covering 2026-2030, increasing total free allocations and reducing industry compliance costs by an estimated EUR 4 billion versus the prior benchmark — a deliberate competitiveness signal following US tariff pressure. A Reuters poll of ten analysts in late May 2026 returned a consensus 2026 forecast of EUR 80.61/tonne, down 13% from the January projection of EUR 92.65. The Market Stability Reserve, the ETS's supply-management buffer, is under 2026 legislative review.
The EU ETS directly shapes European power prices because gas-fired generators pass through the carbon cost of each MWh onto the wholesale market, embedding EUA prices in the clean spark spread. With EUAs near EUR 75/tonne and TTF at EUR 47/MWh in May 2026, CCGT marginal costs are near EUR 129/MWh, above day-ahead clearing prices in Germany, producing a negative clean spark spread and suppressing gas-fired generation. The Carbon Border Adjustment Mechanism (CBAM), which entered its full compliance phase on 1 January 2026, extends the ETS's carbon price signal to imports of steel, aluminium, cement, fertilisers, hydrogen, and electricity, progressively replacing the free allowance regime for those sectors through to 2034.
