Experts predict rising EU carbon allowance (EUA) prices due to tightening regulations, increased climate ambition, and expected economic recovery, making EUAs a good medium to long-term investment for sustainable investment and ethical investments. Investing in the stock market via carbon allowances aligns with environmental goals and offers steady growth. This buy-and-hold investment strategy offers returns through green finance.
All experts concur: European Union Allowances (EUA) prices are set to climb. The European Union Emissions Trading Scheme (EU ETS) has intentional supply constraints - regulators want the market to tighten. The higher the prices, the more powerful the push towards massive decarbonization.
All experts agree on an increase in EUA prices by 2030. At the time of writing, analysts from Bloomberg forecast an increase to €146 per metric ton of CO2. The bank SEB projects a rise to €160, while Morgan Stanley anticipates prices reaching €135. To get there, Reuters has reported the results from the latest carbon experts survey, showing that on average, experts believe carbon prices will reach €77 in 2025 and approximately €93.46 in 2026.
Europe is steadily ramping up its climate ambitions. To meet the corresponding temperature targets, stricter decarbonization measures are adopted. In turn, regulators are tightening the EU ETS, making EUAs more scarce and driving prices higher. For instance, the Fit for 55 reform accelerates the reduction of supply and will end EUA auctioning by 2039. After this point, carbon allowances will only be exchanged from the existing EUAs volumes already in circulation. Also, the reduction of temporary supply in 2025-2026 volumes introduced under the RepowerEU initiative will further tighten the market - another factor contributing to the anticipated price rise.
Expectations are that European industrial activity will pick up following the slowdown caused by the COVID-19 pandemic and the subsequent energy shock after the war in Ukraine. There are already encouraging signs that the macroeconomy is returning to normal. The European Central Bank has begun to lower interest rates, and inflation is no longer at the alarming levels seen a few months ago. Such a resurgence in industrial production will increase the volumes of carbon emissions in the blob, and in turn heighten the demand for EUAs.
EUAs are a great fit for a buy-and-hold investment strategy. Since climate goals span several years, EUAs align well with both environmental objectives and medium to long-term financial returns. They are intended for investors looking for steady growth over time rather than quick gains. The EU ETS is here to stay, and carbon prices are expected to rise steadily, making EUAs a strong choice for those who are patient and focused on the long term.
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