• Analysts predict volatile trading in 2026 due to gas price correlation
• EU carbon prices expected to rise in the long term with reduced free allowances
• Benchmark EU carbon contract hit a two-and-a-half-year high in January

LONDON, Jan 30 (Reuters) - Analysts raised slightly their forecasts for prices in the European Union's carbon market for the next couple of years while predicting volatile trading in 2026 as the benchmark contract moves with Europe’s gas prices.

The EU's Emissions Trading System (ETS) is Europe's main tool for curbing emissions. Under it, manufacturers, power companies and airlines need to buy a CO2 allowance for every ton of CO2 they emit.

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According to a survey of 10 analysts, EU allowances are forecast to average 92.65 euros per metric ton in 2026 and 107.29 in 2027, up a little from the 91.11 euros and 106.94 euros forecasts made in October.

The market has had a volatile start to 2026, with the benchmark EU carbon contract trading around 84 euros/metric ton, having hit an intraday high of 93.80 on January 15, a near two-and-a-half year high.

“In the short term, CO2 prices in EU will continue to be correlated to gas prices, but as new industrial players will phase out from free allowances, we will see demand shifting towards industrial needs and prices following the cost of decarbonization technologies,” said Noemi Zurcher, Carbon Markets & Policies Senior Data Analyst at Rystad.

Benchmark European gas prices have soared around 40% this year amid dwindling stock levels and as freezing temperatures in the United States hit production and exports of liquefied natural gas.

The EU is gradually reducing the free emission allowances given to industries under the ETS, requiring them to increasingly buy allowances instead, strengthening the financial incentive to cut emissions.

Under the ETS, the cap on the emissions that a sector, or group of sectors, can produce also decreases over time.

“We expect European carbon prices to rise sharply over the next few years (from 2027) on tighter annual market balances,” said Haege Fjellheim, head of carbon analysis at Veyt.

The average EUA forecast for 2028 was 110.90 euros/ton, little changed from the 110.20 euros/ton forecast in October.

https://www.reuters.com/sustainability/climate-energy/analyst-eu-carbon-price-forecasts-edge-up-volatile-start-year-2026-01-30/