Higher gas prices linked to the war in Iran could lift European coal generation and push the EU carbon price to as much as €100 per tonne this winter, according to analysts at a US investment bank, as reported by Carbon Pulse. For companies with compliance obligations, and for investors holding allowance exposure, the call matters because it ties the EU carbon price directly to an energy shock rather than to carbon policy alone. The same analysts see the pressure fading in 2027.

What the Forecast Says

The analysis comes from BofA Global Research, according to ANI via Awaz The Voice. The report states: “we expect EUAs could trade up to €100/MT this winter as high European gas prices spur further growth of coal generation.” At the quoted conversion, €100 is about USD 112.12 per tonne.

EUAs are the permits that allow companies to emit greenhouse gases under the EU carbon market. A higher coal burn means more emissions per unit of power, and so more allowances needed to cover them.

Why Coal Gains Ground

BofA says the energy supply shock has driven global prices to their highest levels since Russia’s invasion of Ukraine. Oil prices have risen around 40 per cent since late February, and European natural gas prices have more than doubled.

As a result, coal has become more economical than natural gas for European power generators, even after accounting for carbon costs. That is the mechanism behind the forecast: fuel switching toward a more carbon-intensive source raises demand for allowances.

A Physical Limit on Switching

The report adds a constraint. Years of declining coal-generation capacity across the European Union could limit how far countries can switch fuels. The €100 figure is therefore framed as an upper marker (“up to”), not a base case for the whole winter.

The material does not say how much coal capacity remains available or in which member states. Buyers should treat the figure as a ceiling scenario.

Structural Support From CBAM and Free Allocation

BofA also points to two policy factors that could tighten the market further. The EU’s Carbon Border Adjustment Mechanism (CBAM), which extends carbon costs to imports, and the gradual withdrawal of free emissions allowances for domestic producers could both raise demand for permits.

These effects are described as additional tightening, separate from the gas-driven coal switch. The source gives no quantification of either.

The 2027 Downside

The bank expects prices to ease as the conflict subsides and new liquefied natural gas (LNG) projects come online. It expects EU carbon allowance prices to fall below €80 (USD 89.70) per tonne in the second half of 2027. That outlook assumes Middle Eastern LNG exports return to normal and new projects start operating as expected.

Both assumptions carry risk. If LNG supply recovers later than assumed, the downside call would be delayed, which is why the forecast is a conditional path and not a fixed target.

Transport and Oil Demand Effects

The report also looks at transport. Higher petrol and diesel costs have encouraged consumers to drive less and shift toward electric vehicles, weakening demand for conventional fuels. BofA notes that electric vehicle sales have grown strongly across major markets, and that electric truck sales in China rose around 80 per cent year-on-year in the first quarter.

The bank expects global oil demand to weaken in 2026, with losses of around 3 million barrels per day, before recovering by approximately 4.3 million barrels per day year-on-year in 2027. Despite higher coal generation, it expects total EU emissions to decline this year, supported by cuts in other sectors including road transport.

Implications for Buyers and Investors

For compliance buyers, the forecast points to a wide range between this winter’s potential peak and a sub-€80 level in the second half of 2027. Procurement and hedging timing may matter more than usual, though the source does not offer trading advice.

For investors, the call shows that EU allowance prices are sensitive to gas and LNG markets, not only to supply rules. For voluntary market participants, EU allowance moves are often read as a signal for broader carbon pricing sentiment, but the material does not link this forecast to voluntary credit prices.

What to Watch

  • European gas prices and the pace of coal generation over the winter.
  • Evidence on how much coal capacity can actually be switched back on.
  • Whether Middle Eastern LNG exports normalise and new LNG projects start on schedule.
  • Demand effects from CBAM and the phase-out of free allocation.
  • Whether EUAs approach €100 or settle below that level.

This is one bank’s scenario, not a market consensus. Its value for readers lies in the causal chain it sets out, from gas to coal to allowance demand, and in the conditions that would reverse it.