The EU carbon market may be regional, but its effects are global. As the EU tightens its Emissions Trading System (EU ETS), companies far beyond Europe’s borders will feel the impact through supply chains, trade exposure, and increasing competitive pressure. Carbon costs are set to influence pricing, procurement, and investment decisions worldwide, so understanding the direction of EU carbon pricing is a must for globally active firms.
By 2030, the price of EU carbon allowances could land anywhere between €70 and €160 per ton, depending on how regulators, energy markets, and industrial activity evolve. That spread may look academic on paper, but it represents a massive divergence in real-world cost exposure, strategic value, and competitive positioning for firms across multiple sectors.
This is the first article in a three-part series exploring how carbon pricing will shape the next five years of industrial strategy. In Part 1, we’ll look into why the future of EU carbon pricing is so uncertain and why firms globally need to start paying attention. Later in the series, we’ll look at how EU firms can plan, hedge, and act today, and then widen the view to what US and other international companies should keep an eye on, along with the steps they can take to stay ahead.
What is carbon pricing and why does it matter
At its core, carbon pricing is based on a simple principle: emitting greenhouse gases imposes real costs on society. These costs aren’t reflected in most business decisions, so carbon pricing aims to correct that. By assigning a price to each ton of CO₂ emitted, it makes these costs visible and encourages cleaner alternatives to compete on fairer terms.
In the EU, this is done through the Emissions Trading System (ETS), which sets a cap on total emissions and creates a market for allowances (EUAs). Firms must hold one allowance for each ton they emit. If they exceed their limit, they must buy more or cut emissions. If they emit less, they can sell the excess. This market mechanism gives the EU direct control over emissions supply and pricing.
As a result, EUA prices are shaped by supply and demand. When caps tighten or demand spikes, prices rise. But the system is complex, and the future path of prices depends on how regulators act and how industry responds. That’s what makes the EU ETS so powerful and so unpredictable.
This uncertainty isn’t a narrow policy risk. It affects supply chains, capital planning, and investment decisions. For firms trading with or operating in the EU, carbon pricing is a strategic input and not just a background variable. The following sections unpack the drivers of this uncertainty and outline what a €70–160 / ton CO2 future could look like.
EU regulatory frameworks are in place, but future prices are still uncertain
EU ETS regulatory framework laid out in Fit-for-55 policy package
The EU ETS caps CO₂ emissions for power, heavy industry, intra-EU aviation, and other firms operating in the EU. Every year, the cap shrinks, and less EUAs are issued via free allocation or auction. Emitters must surrender one EUA per ton of emissions and/or buy more on the secondary market from low-carbon operators who sell their surplus or receive a fine. The Market Stability Reserve (MSR) maintains the optimal quantity of permits in circulation to regulate market stability. From 2026, the phase-down of free allocations, reinforced by the Carbon Border Adjustment Mechanism (CBAM), will expose even more industrial emissions to the carbon price. All these mechanisms are collectively part of the Fit-for-55 policy package which aims to reduce emissions 55% below 1990 levels by 2030, working toward net-zero emissions by 2050.
Where carbon prices could land and what’s driving the spread
EU regulators have charted an ambitious course through the Fit-for-55 package, but they've retained wide discretion on how and how quickly to enforce its measures. The EU is leveraging its market scale to drive global climate leadership, and an overly aggressive implementation and timeline could trigger industrial contraction within the bloc.
The uncertainty stems from how regulators will balance decarbonization ambition with industrial competitiveness. Many of the policy levers in play are untested at this scale, making it difficult to predict how fast and how hard carbon prices will rise. As a result, analysts project a wide range of outcomes for 2030 from €70 to €160 / tCO₂.
Below, we compare projections from eight prominent modeling efforts:
| Organization (Model) | Scope | 2030 Price (€/tCO₂) | Key Assumptions |
| Aurora Energy Research | EU ETS I | €70-90 | Prices stay low if clean energy grows and coal is phased out on schedule—but could rise to €90 if emissions cuts fall behind. |
| Enerdata (POLES model) | EU ETS I | €70–75 | Other policies (renewables, efficiency) do much of the work, keeping ETS demand and prices stable. |
| S&P Global (Platts Analytics) | EU ETS I | €100 | Fit for 55 rules are strict, but prices don’t spike thanks to strong progress in cutting emissions through decarbonization policies. |
| Potsdam Institute (PIK – REMIND) | EU ETS I | €120 | Assumes the economy cuts emissions by 55% through a mix of company action and rising carbon prices. Models whole economy decarbonization, assumes +55% GHG reached by balance between industry action and tightening carbon prices. |
| ICIS (Power Horizon model) | EU ETS I | €135–140 | Prices climb as Fit for 55 tightens rules, free allowances are cut, and the MSR operates fully—though clean energy slows the rise. |
| BloombergNEF (Market Outlook) | EU ETS I | €146 | Prices fall slightly around 2025, but shoot up to €145 by 2030 as emissions limits tighten and free credits disappear. |
| BloombergNEF (Market Outlook) | EU ETS II | €149 | New ETS for buildings and transport faces a permit shortfall by 2030, pushing prices near €150. |
| Refinitiv (Carbon Analytics) | EU ETS I | €160 | Tougher emission limits, fewer credits, and fewer allocation cuts push carbon prices to €160. |
Carbon price uncertainty and the push and pull of policy and demand
Like any market, carbon prices are driven by supply and demand. Forecasting them accurately depends on how both sides of the equation evolve: how many EUAs are issued or withdrawn (e.g., via the Market Stability Reserve), and how much demand arises from industrial activity.
| Supply-side drivers (what affects how many carbon credits are available) | |||
| Drivers | Description | Pushes Prices Down | Pushes Prices Up |
| Allowance cap | EU sets total carbon credits, and cuts the cap each year | Slower decline = more credits available | Faster decline = fewer credits to go around |
| Market Stability Reserve (MSR) | Credits are added or removed automatically, based on real emissions | Weaker rules = more credits in circulation | Stronger MSR = tighter control on supply |
| Free allocation phase-out | How fast big emitters lose their free allowances | Free credits last longer = lower demand | Quicker phase-out = more buying pressure |
| CBAM (Carbon Border Adjustment Mechanism) | EU adds carbon costs to imported goods | No/weak CBAM = continued free allowances | Strong CBAM = tighter supply, more domestic demand |
| Demand-side drivers (what affects how many carbon credits companies needs) | |||
| Drivers | Description | Pushes Prices Down | Pushes Prices Up |
| Industrial activity | Busier factories=more emissions=higher demand for credit | Less output = fewer emissions = less demand | More output = more emissions = higher demand |
| Parallel policies | If green energy lags, credit demand rises | Renewables and efficiency reduce need for credits | Weak green policies = heavier reliance on carbon market |
| Fuel prices (gas vs. coal) | Cheaper coal means more emissions, and more credit use | Cheap gas = lower emissions, less pressure on prices | Expensive gas = more coal use = more credits needed |
| ETS coverage expansion | More industries (like shipping) now need credits | Fewer sectors included = smaller demand base | More sectors added = higher overall demand |
| Market sentiment & hedging | Traders act early if credit shortages are expected | Investors sell allowances = prices soften | Investors hoard allowances = prices spike |
Europe may be first, but others won’t be far behind
For companies operating in the EU, this is not a distant policy risk: it is a material, near-term cost exposure. Whether carbon prices settle at €70 or climb closer to €160, firms with heavy emissions will face growing financial pressure and regulatory pressure.
And while EU firms are first in the firing line, companies outside Europe, especially in the US, are certainly not insulated. Through mechanisms like CBAM, the EU’s carbon price is already reaching beyond its borders and reshaping how global trade and compliance work.
Our team is following these shifts closely and helping companies think through what it means for their strategy. If you’d like to explore how this might affect your business, we’d be glad to start the conversation.
