The EU ETS2 Introduction Series, led by the ENCOSE team for the general public and regulated entities of this future market, focuses in this episode on price forecasts. In the past episode about the market scenarios, where we highlighted how quickly the market without any revision and motivational injection into the economy can lead into very quickly short market. Here we disclose our together with other analytical teams and companies predictions of price development.
We consider three scenarios based on the speed of decarbonization, which will shape the overall perception of this future market, the motivation for entry by non-regulated entities such as investors and speculators, hedging strategies by regulated entities, and, consequently, the ETS2 allowance price. These forecasts extend to 2030, when a revision of the EU ETS2 market is expected, introducing uncertainties for longer-term projections.
LOW ABATEMENT
Our low abatement market scenario projects a short market by 2031. The datasets used were:
- Energy and Industry – Exponential Dynamics
- Road Transport – Exponential Dynamics
- Buildings – Absolute Evolution
This scenario assumes that the Market Stability Reserve (MSR) will be triggered in 2029 and 2030, injecting allowances into the market in both years. However, the market is expected to become short in 2031, with a deficit of 220 million allowances. The projected average price is €63.04 in 2027 and €204.15 in 2030.
MEDIUM ABATEMENT
Our medium abatement market scenario, like the low abatement case, also predicts a short market by 2031. The datasets used were:
- Energy and Industry – Absolute Evolution
- Road Transport – Exponential Dynamics of EVs
- Buildings – Exponential Dynamics
In this scenario, the MSR is triggered in 2027, withholding allowances, and again in both 2029 and 2030, injecting allowances into the market. The market still becomes short in 2031, but with a smaller deficit of 60 million allowances. The projected average price is €61.39 in 2027 and €173.04 in 2030.
HIGH ABATEMENT
The high abatement market scenario follows a more gradual transition, with the market becoming short naturally by 2036. The datasets used were:
- Energy and Industry – Accelerated Exponential Dynamics at 2% per year
- Road Transport – Absolute Evolution
- Buildings – Accelerated Exponential Dynamics at 3.5% per year
In this scenario, the projected average price is €57.21 in 2027 and €112.61 in 2030.
These forecasts provide a comprehensive outlook on how different decarbonization speeds could influence ETS2 allowance prices, shaping both compliance strategies and investment decisions in the coming years.
This article is intended for informational purposes only and should not be considered financial advice. The projections and scenarios presented are based on historical data and policy frameworks to approximate possible market evolutions. Market conditions may change due to unforeseen economic, regulatory, and technological factors. Readers should conduct their own research and consult with professional advisors before making any investment or trading decisions.