European Carbon Market Shake-Up: What's Next for the EU ETS?

Europe's benchmark carbon prices have dropped significantly, hitting their lowest point since August 2025. The fall primarily stemmed from calls by EU leaders to potentially postpone the existing carbon market system. This has affected shares of both high and low-emission power companies, stirring a debate on future regulations.

Carbon prices in the European Union have plummeted, reaching their lowest levels since August 2025. This development has sent ripples through the market, impacting shares of power firms and industries regulated by the EU Emissions Trading System (ETS).

The ETS, an initiative that caps carbon emissions and requires companies to purchase permits for their CO2 output, covers 40% of EU emissions, affecting sectors including manufacturing, power, and airlines within Europe. The system aims to gradually reduce emissions by cutting down these caps annually.

The recent fall in carbon prices followed comments from German Chancellor Friedrich Merz, suggesting a postponement or revision of the carbon market. EU leaders echoed this at a summit in Belgium. Affected industries have expressed varied responses, with calls for both regulatory reform and caution against hasty interventions in the market.