What’s happening to the CO₂ price in Europe—and why some countries are calling for a suspension?

The clearest signal has come from prices. At the end of February 2026, EU Allowances (EUAs) fell to around €69–€71/tCO₂, after dropping by more than €20/t since mid-January, triggered by political headlines about a possible review or “softening” of the ETS (the EU Emissions Trading System, the bloc’s main carbon market).

The political push, however, should not be read simply as “let’s suspend the price.” The debate brings in highly technical parts of the system: the cap, free allowances and their phase-out, benchmarks, allocation mechanisms, and stabilisers. In practice, the issue is how to distribute and manage the cost of CO₂ through the transition—not whether to have an ETS at all.

The recurring argument is the competitiveness of energy-intensive industry. When the CO₂ price, energy costs, and weak demand add up, margins get squeezed. This is where calls for “price containment” come in, especially for sectors such as steel, cement, chemicals, paper, ceramics, and refining.

In Italy, the position has been stated very clearly. Industry Minister Adolfo Urso called the ETS “a tax” on energy-intensive companies and asked for the mechanism to be suspended pending a reform (Italy is one of the EU’s largest manufacturing economies, so its stance carries weight in Council negotiations).

Box: what the EU can actually do (and what it can’t)

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Another useful political signal comes from ETS2. The start of carbon pricing for buildings has been postponed to 2028 (from 2027). It is not the same as the “legacy” ETS, but it shows how sensitive the social and political acceptability of the CO₂ price has become.

Lobbying and the “pro-industry” narrative: how to read political signals without being misled

The first rule is to separate tactics from process. Statements, informal drafts, and leaks move prices, but they are not a reform yet. In the real process, the Commission proposes, Parliament and Council co-decide, and 2026 is the key window for ETS and the MSR (Market Stability Reserve), as indicated by the consultation pathway already under way.

The second point is to understand the typical communications drivers. “Carbon leakage,” “export competitiveness,” “incomplete CBAM,” and “too much volatility” are arguments often used to ask for more free allowances or delays, rather than to change the trajectory of the cap. That is a material difference: one thing is redesigning who pays and when; another is switching off the signal.

A concrete example of how the narrative can be “pushed” emerged with an industrial petition presented in February 2026 in Antwerp. According to POLITICO, the text was presented as if it were “on behalf” of around 1,350 signatories linked to the Antwerp Declaration 2024, but several companies later denied supporting the new request. The organisers admitted they did not know the real number of supporters and, in a later version of the document, 16 lobby groups were listed as backers.

The lesson for those managing risk and budgets is practical. Noise is when procurement freezes forward EUA hedges because “people say they’re suspending the ETS.” A signal is when treasury updates the hedging policy only after official consultations, Commission drafts, and the review timetable.

Final point: source hygiene. Prices and market data are one thing; partisan commentary is another. A minimal checklist for CFOs and Heads of Sustainability should distinguish between market data and narrative, and always ask: who is speaking, with what interest, and at what stage of the EU process are we?

What near-term scenarios for energy-intensive companies and value chains: volatility risk or structural reforms?

The most immediate scenario is headline-driven volatility. In early February 2026, EUA prices hit four-month lows in a context where news about free allowances and allocation “deflated” bullish expectations. For an energy-intensive company, this translates into more nervous mark-to-market, pressure on covenants, and uncertainty in energy contracts with CO₂ pass-through.

The second scenario is a “soft” reform. Here the focus is not stopping the ETS, but intervening on the phase-out of free allowances and on allocation and benchmark rules to mitigate cost shocks, while keeping the overall trajectory. This is the scenario that forces serious sensitivity analysis: a view on price is not enough—you need a view on design.

The third scenario concerns the MSR and market design. The MSR is under review in 2026 and the Commission has already proposed targeted adjustments to the MSR decision to support a smoother start for ETS2. The message is that the stability tool is politically active and can become the compromise point between ambition and volatility management.

Across value chains, the issue becomes contractual. Steel and chemicals selling to OEMs may find themselves renegotiating carbon-cost pass-through clauses. In parallel, CBAM (the EU Carbon Border Adjustment Mechanism, which applies to certain imported goods) enters the conversation as an additional layer of perceived exposure, with industrial leaders remaining sceptical about its ability to solve the competitiveness problem in the short term.

A useful decision matrix here combines EUA hedge ratio, power hedging, macro scenario, and policy triggers. The rule is simple: hedges should not change on rumours, but on verifiable events in the EU process.

Impact on the voluntary market: demand, prices, and credit quality when the ETS is under pressure

The transmission channel is the budget. When the ETS becomes unstable, some companies rebalance between compliance costs (EUAs) and spending on voluntary claims. This can shift spot and forward demand in the VCM (Voluntary Carbon Market) and increase the “flight to quality.”

The numbers point to a more selective market. Carbon Direct reports 2025 retirements around 157 MtCO₂e, down 7% versus 2024, as a proxy for spot demand. Sylvera notes that retirements fell by about 4.5%, but market value grew by about 6% to roughly $1.04B. The consistent reading is a quality premium: lower volumes, more attention to what is being bought.

This price bifurcation is now structural in procurement practice. Market analysis highlights spreads between integrity tiers, with growing requirements for ratings, CCP alignment, and robust MRV. In parallel, “compliance-like” demand linked to schemes such as CORSIA can compete for high-quality supply and push towards forward contracting.

How to adapt corporate climate strategy (hedging, credit procurement, carbon budget) in an uncertain context

The priority is an integrated carbon risk policy. Compliance exposure (EUAs and, where relevant, CBAM) and voluntary exposure (credits for claims) must be separated, with different KPIs and risk limits. If you don’t separate the two, you end up using voluntary credits as an emotional valve when the EUA price moves.

On EUA hedging, 2026 volatility is a reminder: you need ex-ante rules. Typical B2B approaches include layering and trigger-based hedging, with shared governance across CFO, Risk, and Sustainability. The goal is not to “guess the price,” but to avoid impulsive decisions based on news.

On credit procurement, the shift is from “I buy spot when it’s cheap” to a portfolio approach. That means diversifying across types, vintages, and geographies, and doing due diligence on standards and alignment with ICVCM’s Core Carbon Principles (CCP).

On the carbon budget, a three-line structure works: (1) EUA/CBAM, (2) internal abatement, (3) credits (VCM and CDR). Recent work on CBAM and carbon pricing can be used as a conceptual base to think through how to rebalance the three lines as prices and policy expectations change.

Practical examples help. A cement plant can combine clinker factor reduction, renewable PPAs, and EUA hedging, using credits only for residual emissions. A chemicals company can book CDR supply forward to protect itself against a possible tightening of the quality demanded by the market.

The first indicator is the EU policy timeline. The 2026 ETS/MSR review should be tracked with discipline: consultations, drafts and official communications, and the positions of major Member States on free allowances, CBAM, and export support, as also discussed in European Parliament briefing documents.

The second indicator is market-based: spot and futures prices (for example the end-February 2026 reference around €70/t), volatility, and event risk linked to announcements. This is the minimum set for credible stress tests.

The third indicator is ETS2 as a political thermometer. The delay to 2028 and related institutional signals help gauge political tolerance for “broad-based” carbon pricing and the likelihood of containment measures.

The fourth indicator is CBAM. Even without numbers, operational progress and the impact on supply chains remain central for industrial buyers and international procurement.

The fifth indicator is the VCM: retirements as a demand proxy, price dispersion by integrity tier, adoption of criteria such as ICVCM CCP, and the shift towards removals. The 2025 figure of 157 Mt retired is a useful baseline for reading 2026 without being misled by volumes alone.