European carbon prices recorded one of their steepest declines in over three years on 12 February, as mounting political pressure to revise the bloc’s Emissions Trading System (ETS) rattled markets. Benchmark European Union Allowances (EUAs) slid to around EUR73 (US$86.6) per tonne, the lowest level since late 2025, after comments from senior leaders suggesting the climate-policy tool should be reviewed to ease industrial burdens.
The drop marked a significant pullback from price levels above EU90 earlier in the year, with carbon permits losing nearly 20 per cent of their value since mid-January. Market participants cited risk-off selling and unwinding of long positions as political debate intensified ahead of an EU leaders’ summit on competitiveness and climate policy.
German Chancellor Friedrich Merz sparked the sell-off by stating that the ETS should be “revised or at least postponed” if it undermines industry competitiveness, prompting similar calls from other member states to reconsider the pace and structure of emissions pricing. European Commission President Ursula von der Leyen defended the ETS as a core climate tool, highlighting its role in driving clean technology investment and generating substantial revenues for member states since 2005.
Trading volume in EU carbon contracts surged as participants grappled with the implications of potential reforms, with analysts warning that ongoing uncertainty could weigh on investment in emissions-intensive sectors, including cement and steel.
The ETS is scheduled for a formal review later in 2026, with outcomes expected to influence the shape of Europe’s decarbonisation agenda and carbon pricing framework.
