Dutch-headquartered international bank ING has shared its predictions regarding the future of the EU carbon market.
The bank stated that this year, EU allowances (EAUs) have been mostly under pressure from low industrial production and higher renewable energy output, which resulted in carbon prices declining to €52/mt in February this year, the lowest level since 2021.
In particular, higher energy costs and low demand continue to put pressure on industrial activities in Europe, with more decline in industrial production expected next year, thereby the potential for an escalation in trade tensions. In the meantime, the number of auctions for the REPowerEU program as a result of the European Commission’s (EC) plans to raise €20 billion with the aim of funding the program has increased supply, contributing to the downward pressure on the prices. The EC plans to auction about 147 million allowances between now and the end of 2026. The target of €20 billion means that it would need to achieve an average price of about €80/mt, far above current levels. This signals that the EU has to sell more allowances or lower its fund target. If it chose the former, that would increase the pressure on prices.
Ultimately, even though carbon prices are likely to trend higher next year, the rise may be more modest than the initial expectations. Taking into account the abovementioned facts, ING predicts that carbon prices will reach €70/mt in the first quarter of 2025 and €74/mt in the full year.