Liquidity in EU ETS 2 remains sparse, with only a handful of trades since the launch of the first futures contract in May. With no underlying supply available until auctioning begins in 2027, selling futures carries significant risk: price formation remains fundamentally uncertain, and potential sellers have little ability to hedge positions. This risk has been amplified by policy challenges, most notably the recent non-paper backed by a majority of Member States, which outlined measures that could dampen prices considerably. Together, these factors have kept most participants on the sidelines, leaving only sporadic trades.
Figure 1 highlights these developments: volumes have been limited and irregular, with a one-off spike in June, while prices have gradually edged higher—from €76/t in May to nearly €87/t in August. Despite very thin activity, the upward drift points to firming market expectations. In addition to the trades on ICE Endex, one Dec-27 contract was traded on EEX on 2 July at €81/t.
Since May, EUA2 contracts have gradually diverged from EUA prices, moving from parity to a €9/t premium by early August (Figure 2). The widening spread reflects both a higher risk premium in EUA2 and the distinct fundamentals of the two markets, meaning prices should not be expected to move in lockstep. Our fundamental model points to 2027 prices broadly in line with current levels, suggesting the market is converging toward fair value.
Forecasting prices in the early days of ETS2 is inherently difficult, but we are keen to test our model’s performance against traded levels. As Figure 3 shows, Veyt’s Dec-28 EUA2 forecast (€81–93/t) has encompassed observed market prices (€76–88/t). The early alignment suggests our assumptions are capturing the key drivers of market formation. Even before futures trading began, Veyt’s €93/t quote was close to the final market price.
The most recent policy event was the ‘non-paper’ put forward by 16 Member States in June, warning how the uncertainty around the initial price level in 2027 creates a huge risk of price volatility. The text does not question the rationale of the ETS 2 as such, and it acknowledges that cutting emissions is the most effective way to stabilise prices. Yet, it asks the European Commission to consider adjustments already now, before the system becomes fully operational in January 2027. Veyt assessed how the proposal could affect demand and prices in this analysis.
The non-paper followed months of statements by Poland, Czechia, and other Member States calling for a delayed start and/or fast-track revision of the ETS2. While those statements could to some extent be ignored, the Commission realised it cannot easily dismiss a concerted request from a majority of Member States, including Germany, Italy and Spain. It is currently looking into which option(s) might be most effective in reducing price volatility and uncertainty.
We can probably expect more details in the coming months. What seems clear is that the Commission wants to keep the ETS2 discussion out of the general ETS review.
In terms of Member States’ implementation, there has been little to report since June. Around twenty capitals have yet to transpose ETS2 into national legislation, and the European Commission has told them to hurry up or risk infringement procedures. Among those that have or are transposing, the Netherlands, Sweden, Austria and, most recently, in April, Finland, have expanded their ETS2 scope, to include emissions from leisure boats, off-road vehicles and other smaller sectors.
Policy developments: If the European Commission addresses the non-paper proposals through secondary legislation, draft delegated acts could be presented shortly, requiring a two-month scrutiny period.
Timeline for potential changes: Draft delegated acts presented in September or October (covering early auctions or MSR adjustments) could theoretically be adopted by the Commission by late 2025.
Market activity uptick: Activity in other energy markets, especially the ETS1 market, typically picks up in September after a summer hiatus in August. This could mean more trading activity in the coming month, though uncertainties still loom over the market.
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