Carbon price in the EU will reach €74/t in 2025 – ING forecast

ING International Bank predicts a moderate recovery in the EU carbon market over the next year as free allowances are further withdrawn. Supply will remain high due to the volume of auctions for REPowerEU, but there are risks on the demand side.

ING sees an upward trend in the carbon price in 2025. However, it is likely to be more modest than initially expected. The market will be supported by further phasing out of free allowances for the aviation sector, coverage of emissions in the maritime sector, and market preparations for the start of phasing out free allowances for sectors under the Cross-Border Carbon Adjustment Mechanism (CBAM) in 2026.

The combination of high energy prices and low demand continues to weigh on production. There is a risk of a decline in industrial activity in 2025, with the potential for escalating trade tensions.

As for prices, the bank’s analysts expect them to reach €70/t in the first quarter of 2025 and €74/t by the end of the year.

EU carbon allowances (EUAs) have been under pressure for most of this year. Demand in the period was affected by weak industrial production and high volumes of renewable energy generation. In particular, in February 2024, prices fell to €52/t, the lowest level since 2021.

Pressure on EUA prices was also exacerbated by the sale of allowances to finance REPowerEU. According to the bank’s analysts, the European Commission wants to raise €20 billion from the sale of allowances to partially finance this plan. The proposal is to auction 266.7 million allowances between 2023 and 2026.

In 2023, 35.2 million allowances were sold, and in 2024, 84.86 million were sold. This allowed to raise €8.3 billion for REPowerEU. The EC, ING notes, still has almost 147 million allowances to auction between now and the end of 2026, and given its stated goal of €20 billion, it will need to achieve an average price of about €80/t – well above current levels. So to achieve the target, it will either have to sell more allowances or lower the bar. If the former option is chosen, it will put further pressure on prices.

As GMK Center reported earlier, analysts expect carbon prices in the EU to rise by 2027 as supply declines due to political measures. This is evidenced by a quarterly Reuters survey released in October. The average price forecast for 2027 was €111.14/t. This is the first time the survey participants were asked about this period.