Veyt carbon analysts compare notes after Carbon Forward
Our Chief Analytics Officer, Marcus Ferdinand, and Head of Carbon Analysis, Ingvild Sørhus, just returned from the Carbon Forward conference in London. Marcus debated in the ‘Analyst Showdown’, the review of Europe’s carbon market (EU ETS) with policymakers and discussed how European carbon prices and market balances would develop to 2040. Ingvild presented Veyt’s market outlook on the up-and-coming emission trading system for road transport and buildings (ETS2) and discussed how the current policy uncertainty is priced in. Between sessions, they discussed latest market developments with other event participants. Back in the office, they compared notes on the key topics dominating conversations across the European carbon market: the EU ETS review, gas prices, investment fund positioning and how a heated ETS2 debate could spill-over to ETS1 negotiations.
Here are their takeaways, edited for length and clarity:
The EU ETS review: an outcome close to the Commission’s proposal
Marcus: What was top of everyone’s agenda in London last week?
Ingvild: The EU ETS review, by far. Most people expect the final market framework shaping close to the Commission’s proposal. Overall stakeholders find that the proposal which the Commission tabled on 17 July this year is balanced, as other political groups and member states have started to circulate their own positions. The timeline for landing a decision was the other big topic discussed and how this would impact carbon prices during the end of this and beginning of next year.
Looking to keep up to date on the EU ETS review, industrial carbon costs or EUA price outlook and scenarios? Explore Veyt’s EU ETS Review Intelligence.
Gas: out of the money for 2027
Marcus: Gas prices are high and storage levels are low. Does that outweigh some of the policy risk?
Ingvild: On the power side, everyone sees gas as out of the money for 2027 and into 2028, and we expect that to continue. In that sense, high gas prices are bullish for carbon even though we have lately seen a slight decoupling as even higher gas prices will not enable much more fuel switching given coal and lignite runs almost on full capacity already. The rest depends on the winter: how much renewable power is available, and how cold it gets. Those two factors decide power sector emissions, and the market will watch them closely until the winter is over.
Veyt tracks power sector emissions daily through the winter, along with fuel switch levels, gas storage filling and the effect of weather on emissions. Read more about Veyt’s Carbon Market Intelligence
Investment funds: back, slowly and steadily
Marcus: Investment funds were squeezed at the start of the year, but their net long positions have stabilised and moved slightly upwards lately. Does the financial sector look more optimistic again at the European carbon market?
Ingvild: Slowly but steadily these positions are building again, not to the same degree as last year though, when funds built a large net long position. What do you think, Marcus?
Marcus: I agree. The investor community is keen to get back into the market, if more cautious after the past half year. The uncertainty around the policy process is still there, but it is getting much more manageable given the more rationalised debate. We have a concrete process, concrete timelines, and a commitment from policymakers to move. Prices have stabilised again, partly because of gas, and I see interest from the financial community in re-entering the market. That said, traded volumes remain lower than before the big price decrease early this year.
ETS2: weak Council support, but likely to go ahead
Marcus: The European Council Met last week as well, how much did ETS2 dominate the agenda?
Ingvild: ETS2 was one of the main topics last week. The Environment Council met on Monday, and the conference ended before European leaders gave their signals. The uncertainty hits compliance companies hardest. Companies in member states that have transposed ETS2 rules into national law know where they stand. Companies in member states not having transposed yet, such as France and Spain, have less to go on. The big question is, are we seeing further delay in the system or not?
The European Council conclusions did not show great support for ETS2. Even so, I think ETS2 will probably move ahead as planned, with early auctions starting on 18 January 2027.[MF2.1]
Note: The full video-screened version of Ingvild’s and Marcus’ conversation is available to our clients via Veyt’s EU Carbon analytics platform.
Looking ahead: from policy uncertainty to price trajectory
The final design of the EU ETS review is still open. The Commission’s proposal is on the table, political groups and member states have put forward alternatives, and the timeline is debated. For ETS2, the European Council conclusions showed weak support, and member states differ on whether they have written the rules into national law. Each open question changes the balance of allowance supply and demand, and with it the EUA price trajectory. Veyt’s sessions at Carbon Forward covered three examples:
- Changes to the price containment mechanism (Article 29a) could limit market liquidity.
- Changing free allocation rules affect industrial carbon budgets.
- The Industrial Decarbonisation Bank and the Investment Booster affect carbon prices and industrial demand.
Policy statements can move prices long before any vote. Interpreting each new position as it appears, and translating it into market balance and prices is more crucial than ever to understand how regulatory proposals can move the market and what probabilities are attached to each of these sensitivities.
As the review develops, Veyt’s answers your questions based on our data, models and analyst interpretation. Learn more about how you can stay ahead of the EU ETS review.
How Veyt helps you stay ahead of the EU ETS review
Over the coming months, the review moves from debate to formal positions. The European Parliament and the Council each set out where they stand, before the institutions negotiate a final text in trialogue, likely during Q1 2027.
Veyt’s analysts continuously adjust our EUA price forecast to the contours of the expected ETS reform. You see what each step means for allowance supply, market balance and carbon prices, and can adjust your trading positions and long-term strategy before the reform is agreed.
Explore Veyt’s EU ETS market intelligence
If you would like to talk to us about how Veyt supports organisations with an interest in the EU ETS, contact our team.
