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European Oil Markets
27JUL

EUA carbon breaks EUR 80 as gas sags

4 min read
10:27UTC

EUA settled EUR 80.73 on 25 June, its first clean break above EUR 80, while TTF sagged to EUR 40.75. Carbon now floors a German gas plant's marginal cost near EUR 98/MWh whatever gas does.

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EconomicDeveloping
Key takeaway

Carbon sets a EUR 98/MWh floor under German gas plants regardless of how soft gas gets.

EUA carbon settled EUR 80.73/tonne on 25 June, its first clean break above EUR 80 1. An EUA is one permit to emit a tonne of CO2 under the EU Emissions Trading System, and every gas plant must buy them: a combined-cycle turbine pays for gas plus roughly 0.2 tonnes of carbon for each MWh it generates. The same day, the Dutch gas benchmark TTF sagged to EUR 40.75/MWh 2, so the two legs of generation cost pulled apart, carbon up and gas down.

Carbon now sets a hard floor under gas-fired power. At EUR 80.73 the carbon leg alone lifts a German plant's marginal cost to roughly EUR 98/MWh even with gas this soft. That EUR 98 floor is the carbon component of the spark spread the heatwave blew out in the lead: when German day-ahead ran to its peak it was the gap above EUR 98 that made the margin, and it is the same floor plants will defend once the weather premium drains.

EUA had already clawed back to EUR 78.22 on 4 June , reversing the sell-off that followed The Commission's May ETS-benchmark revision, and the 25 June break extended that recovery on supply grounds. The annual cap falls about 180 Mt this year and CBAM keeps withdrawing free allocation, so the bid is structural rather than gas-driven. Optimism on US-Iran de-escalation and the UK-EU summit added risk appetite on top.

Deep Analysis

In plain English

The EU carbon market works by issuing a fixed number of permits to emit carbon dioxide. Every year, the total number of permits falls, making them scarcer and more expensive to buy. On 25 June, the price of one permit to emit one tonne of CO2 broke above EUR 80 for the first time in 2026. At the same time, European gas prices fell to EUR 40.75 per megawatt-hour because Middle East supply risks looked less severe than two weeks earlier. Carbon permits at EUR 80.73 per tonne contributed more to gas-plant running costs than the gas fuel itself did on 25 June. Electricity from gas plants therefore stayed expensive regardless of the gas price. Steel, cement, and aluminium manufacturers also face higher compliance costs above EUR 80 EUA, since they must buy permits for their own industrial emissions.

Deep Analysis
Root Causes

The Phase IV ETS reform package imposes a 4.4% annual cap reduction from 2023 onward, compared with 2.2% in Phase III. At 2025 verified emissions of approximately 1.33 Gt, the 2026 cap covers supply by roughly 180 Mt less than the prior year's cap, compressing banked allowance reserves that previously acted as a soft price ceiling.

CBAM's 2026 implementation removes 2.5% of free allowances for steel, cement, and aluminium sectors. These sectors previously received full allocation for their 2025 output; the 2.5% cut requires them to purchase marginal allowances at market rates, adding approximately 12-15 Mt of demand at current activity levels.

This demand is independent of power-sector or gas-price dynamics, creating a structural bid floor that TTF weakness cannot erode and that diverges from the carbon-gas correlation most spread models assume.

What could happen next?
  • Consequence

    EUR 80.73 EUA sets a carbon-only CCGT floor near EUR 98/MWh that persists regardless of TTF direction; any TTF weakness that historically softened CCGT marginal cost is now more than offset by carbon strength, removing the gas-power correlation that most spread models price at this level.

    Immediate · Assessed
  • Opportunity

    Clean dark spreads turn structurally negative above EUR 75 EUA, removing hard-coal capacity from the German merit order and increasing gas-fired generation's share of residual load; desks holding long gas generation positions benefit from coal-to-gas switching before any TTF recovery.

    Short term · Assessed
  • Risk

    CBAM's 5% free-allocation removal in 2027 adds a further 25-30 Mt of structural demand to the EUA market; if the 2026 break above EUR 80 reflects only the 2026 2.5% CBAM tranche, the 2027 step produces a second structural bid and current Q4 2027 EUA forwards may understate the trajectory.

    Medium term · Reported
Sources:ICE / TradingEconomics·TradingEconomics
Mentions:EUA →TTF →CCGT →Germany →Netherlands →European Commission →REPowerEU →Iran →Ember →EU Emissions Trading System →CBAM →
First Reported In

Update #21 · Heat cracks the French-nuclear floor

ICE / TradingEconomics· 26 Jun 2026
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Causes and effects
Caused by
EUA carbon holds EUR 78.22 above clawback
EUA at EUR 78.22 on 4 June was the clawback level from the May ETS-benchmark sell-off; EUR 80.73 on 25 June is the continuation of that structural cap-tightening recovery through a new threshold
Occurred 4 Jun 2026
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This Event
EUA carbon breaks EUR 80 as gas sags
Carbon, not gas, now sets the cost floor under German gas-fired power, capping how far electricity can fall when gas is cheap.
Led to
Clean spark spread reaches EUR 74
EUA recovering from EUR 79.25 (29 June) to EUR 80.17 (30 June) after briefly losing the EUR 80 handle set the EUR 32/MWh carbon leg that held the German spark spread below EUR 100 even at EUR 195 day-ahead power.
Occurred 30 Jun 2026
Read story →
Different Perspectives
Asian buyers (India, Japan, China, South Korea)
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Russia / Lukoil
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Mediterranean refiners (Sines, Trieste, Augusta)
Mediterranean refiners (Sines, Trieste, Augusta)
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Saudi Arabia
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