Shrinking EUA supply and falling prices are putting the EU ETS under strain. Fastmarkets Carbon explores how policy design led to this and what reforms the EC could implement to balance supply stress with decarbonization goals.

China has indicated plans to expand the coverage of its national carbon market and to establish a national low-carbon transition fund as part of its economic policy agenda for 2026, according to the government’s annual work report delivered at the National People’s Congress on Thursday March 5.

European allowances have steadily dropped in recent days amid wide uncertainty in the emissions trading market, defying a sharp spike in Dutch TTF Natural Gas prices prompted by the escalating conflict in the Middle East.

The EU ETS reform, including the phase-out of free allocations, is set to significantly increase emissions costs for EU industrial producers, with effective EUA prices rising sharply by 2035, driving substantial cost pressures and price increases across key sectors like steel, aluminium, and downstream industries such as automotive and construction.