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European allowances (EUA) are the units traded in the EU’s Emission Trading System (ETS). Market participants are required to purchase one EUA for every tonne of carbon they emit covered by the program in the bloc.
EUAs can be purchased on the primary or secondary markets and have historically corresponded closely to supply/demand fundamentals and pricing in the energy markets.
This is mainly down to fuel switching and energy production in the bloc, with higher gas prices usually incentivizing the grid to switch to coal use, which has higher carbon emissions and therefore raises demand for EUAs.
While the current conflict in the Middle East – between Iran and the US/Israel – continues to escalate, TTF prices have risen substantially, incentivizing the use of cheaper coal-based alternatives. But while the gas market has rallied, EUAs have instead remained stable this week after steady declines through January and February.
The ICE December 2026 Dutch TTF contract was most recently at €45.33 ($52.41) on Friday March 6, after trading around €30 for much of the year.
This bullishness has largely been in response to the US and Israel’s attack on Iran on February 28, with ICE December 2026 Dutch TTF rising by 40% from €31.79 on February 27 to €44.65 on March 3. It has since stabilized slightly but remains at elevated levels overall.
Near-month futures showed even more strength, signifying increased near-term supply disruptions, with the April 2026 contract up by 70% to €54.29 on March 3 from €31.95 on February 27. It has since weakened slightly to €52.21 on Friday but is still significantly higher than in February.
Fastmarkets’ analysts believe that a 40% increase in gas prices from an original baseline trajectory would lead to a 4% increase in 2026 power emissions, translating to a 20.5 million tCO2e rise in emissions in the EU and subsequent demand for EUAs.
Despite this, EUAs on ICE have shown no bullish momentum, with bearish sentiment dominating.
The ICE December 2026 EUA contract was most recently down by 15% to €70.76 on March 5 from €83.28 in early February. EUAs reached their highest level this year on January 19, when the contract was at €92.04.
Sentiment over the direction and stability of the EU’s ETS has capped any drastic move to prices, despite the sharp spike in Dutch TTF Natural Gas Futures on ICE.
Member States have been vocal in opposing the EU’s ETS recently, causing continuing speculation around upcoming reform.
For instance, ministers of industry in Austria, Croatia, the Czech Republic, France, Germany, Italy, Luxembourg, Poland, Portugal, Romania, Slovakia, Slovenia and Spain recently issued a joint statement calling for ETS revisions.
The ministers called for an ETS that will enhance “EU competitiveness by ensuring an effective price signal, predictability, market stability and protection against excessive price volatility, together with a pragmatic approach to free allocation that fosters investments in climate-friendly technologies and provides robust safeguards against carbon leakage.”
In addition, Italy’s Minister for Enterprises, Adolfo Urso, called for a “substantial, organic revision” of the ETS during the European Commission’s Competitiveness Summit on February 26.
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