ClearBlue Markets is proud to announce that our recent insights into the evolving dynamics of the EU Emissions Trading System (EU ETS) have garnered significant attention from Montel. In their recent article, Montel highlights our analysis, which indicates a pivotal shift in the carbon market: the industrial sector is set to become the primary sector facing a growing shortage of carbon allowances. This recognition underscores our expertise and pivotal role in shaping the future of carbon markets. Here, we summarize the key points from the Montel article and celebrate our impactful contribution to the industry.
Shifting Dynamics in the Carbon Market
During a recent webinar, our EU market analysis manager, Egis Breshani, presented a comprehensive outlook, projecting that the power sector’s share of the total EU Allowance (EUA) deficit will decline significantly from 74% in 2024 to 39% by 2030. This reduction is attributed to the sector’s ongoing decarbonization efforts. On the other hand, the industrial sector’s share of demand relative to the deficit is anticipated to surge from 11% to 38% by the end of the decade. This shift is largely driven by the metals and cement sectors, which are expected to lose about half of their free EUA allowances due to the upcoming carbon border adjustment mechanism (CBAM).
Understanding the Carbon Border Adjustment Mechanism (CBAM)
The CBAM, set to introduce a reporting obligation starting in 2026, will impact several key industries, including aluminum, cement, electricity, fertilizers, hydrogen, iron, and steel products. This mechanism is designed to prevent carbon leakage and ensure that imported goods are subject to the same carbon costs as products produced within the EU. The introduction of CBAM is a crucial step towards achieving the EU’s ambitious climate targets but also poses significant challenges for industries that have historically relied on free allowances.
Aviation and Shipping: Rising Demand for EUAs
Our analysis also highlights the growing demand for EUAs from the aviation and shipping sectors, with their share expected to rise from 15% to 24% by 2030. This increase underscores the broadening scope of the EU ETS and the expanding responsibility of various sectors to mitigate their carbon emissions.
Projected EUA Deficit and Market Implications
We project that the EU ETS will transition from a current surplus of approximately 59 million tonnes to a deficit of up to 300 million tonnes by 2027. This unprecedented shortage relative to auction supply is driven by higher demand from compliance companies starting in 2025, coupled with factors such as the RePowerEU programme and the market stability reserve (MSR). As per the European Commission's announcement earlier this month, the MSR is expected to reduce auction volumes by 267 million carbon emission allowances between September 2024 and August 2025.
Future EUA Prices and Industry Adjustments
Our innovative emissions trading model, Vantage Behavioural Insights, developed in collaboration with emissions data firm SparkChange, predicts that annual EUA deficits will begin to recede from 2028, falling to 115 million tonnes by 2030. While the exact causes of this reduction were not detailed, Breshani emphasized the need for the market to prepare for upcoming EUA deficits. Higher EUA prices are anticipated, prompting industries to accelerate their emissions abatement efforts. The power sector alone will not be sufficient to balance the market, necessitating rapid adjustments across various industrial sectors.
For more detailed insights and to read the full article, visit Montel's coverage here.