Why Brussels wants to intervene on the ETS price and what political objectives it is pursuing

Brussels is watching the price of EUAs because today it has a much more direct macroeconomic impact than it did a few years ago. After Fit for 55 and REPowerEU, the ETS price shows up more often in debates about energy inflation, industrial competitiveness, and electricity costs. In parallel, auction revenues are not just a “side effect”: they finance EU instruments such as the Innovation Fund and the Modernisation Fund and, from 2026, the Social Climate Fund as well. Source: European Commission on ETS auctions and revenue use.

The price context has changed recently, and policymakers see it clearly. According to the EEA, the average EUA price in 2024 was €64.8/t, down from €83.6/t in 2023. This reduced auction revenues even though volumes increased, and it is a good example of the “stability and volatility” problem that matters to decision-makers. Source: European Environment Agency.

The politically presentable objective, more than “managing a price,” is to increase predictability without breaking the integrity of the cap. Companies are asking something simple: can I build a business case around a CO₂ price corridor, or do I have to treat the EUA like a commodity exposed to shock risk? If the answer is an “implicit corridor,” a moral-hazard risk also emerges: the market may price in the expectation of public intervention when prices rise too much.

The trade-off is real and cannot be solved with a slogan. Stabilising too much can weaken the price signal that drives electrification, fuel switching, and CCUS. Stabilising too little increases hedging costs and P&L risk, especially for hard-to-abate sectors and for those with energy contracts that include pass-through clauses.

A concrete example helps. An Italian energy-intensive company (cement, steel, chemicals)—Italy is one of the EU’s major industrial manufacturing hubs—that must choose between retrofits, CCS/CCU, or alternative fuels in 2026–2030 uses the EUA as a key variable for WACC and IRR. If the ETS becomes “more managed,” the risk distribution changes: less tail risk can lower the risk premium, but it increases the weight of political and regulatory risk.

MSR in practice: how it balances allowance supply and why the cancellation rule is under scrutiny

The MSR is a rule-based mechanism that moves allowances into or out of auctions based on the TNAC (Total Number of Allowances in Circulation). In practice, if the TNAC is high, the MSR “absorbs” allowances by reducing auction supply (intake). If the TNAC falls too low, it can release allowances (release). In technical discussions, thresholds such as 833 million (upper threshold) and 400 million (lower threshold) are often cited as historical reference points. Source: European Commission, MSR and TNAC communications.

The effect is not theoretical: the Commission stated that the MSR would reduce auction volume by around 267 million allowances between September 2024 and August 2025. This figure is useful because it gives an order of magnitude for the MSR “tap” on supply. Source: European Commission.

The most politically sensitive point is the cancellation rule. When the MSR exceeds a certain level, part of the allowances is cancelled and therefore disappears permanently from future supply. This raises the typical buyer question: is there a risk that cancelled allowances will be “put back,” or that cancellation will become less automatic? The answer depends on reform choices, but the reason for the debate is clear: cancellation makes the system tighter and can amplify price increases in the presence of shocks (energy, weather, capacity outages).

Cancellation is under scrutiny also for a public-finance reason. The ETS has been used as a revenue source and as a lever for REPowerEU, and this increases attention on MSR calibration and its effects on auction revenues. Context source on the REPowerEU revenue topic:

One operational detail that matters for the market is the information calendar. The TNAC is published annually and guides decisions on auction volumes. This creates seasonality: ahead of publication, expectations rise and price sensitivity to MSR-related news often increases.

Most likely reform scenarios: moderate changes, more flexibility, and impacts on volatility

Three scenarios often recur in the policy debate on the MSR. These are not forecasts, but reform “shapes” that help stress-test volatility and the forward curve. Analysis source on the MSR review:

  1. Adjustment of TNAC thresholds The typical effect is to shift the point at which the MSR absorbs or releases supply. More “tolerant” thresholds can reduce the probability of squeezes and spikes, but increase the risk of surplus and drawdowns. On the forward curve, the market tends to reprice the scarcity premium, especially on 2026–2030 maturities.

  2. Adjustment of the intake/release rate (more flexibility) Here the idea is to make the mechanism more reactive. In theory it can dampen extreme moves and reduce tail risk. In practice it can also increase the “political premium”: prices react more to statements and drafts, because the market tries to anticipate how quickly the MSR will intervene.

  3. Change to cancellation (slower or conditional) This is the most sensitive scenario for perceived climate ambition. Less automatic cancellation tends to reduce expectations of structural scarcity and can compress forward prices, but it can also increase regulatory uncertainty if conditions become discretionary. For a buyer, the risk is not only “lower or higher price,” but “rules changing mid-way through the investment cycle.”

To build stress-test ranges, it is useful to look at recent 2025–2026 signals cited by market sources. One market summary reports for 2025 an average around €73.43/t and describes phases in which Dec-2026 contracts showed strong moves, including above the €80–87/t area during periods of tension and expectations. These figures should be treated as ranges for sensitivity analysis, not as forecasts. Source:

“More flexibility” also means more headline risk. Some market analyses link price drops to statements about possible reforms, a sign that the market is pricing the probability of intervention. Source:

In 2026, supply does not depend only on the MSR. Auction calendars and choices on allocations and funds also matter, including adjustments linked to REPowerEU. For this reason, it is useful to distinguish “mechanical” supply (calendar, volumes, earmarking) from “regulatory” supply (MSR). Source: revised 2025–2026 auction calendars.

Practical output, probability × impact matrix (qualitative):

  • TNAC thresholds: moderate probability, moderate impact on volatility; stronger impact on the forward curve.
  • More flexible intake/release: moderate probability, moderate-to-high impact on short-term volatility and on reaction to news.
  • Modified cancellation: moderate probability, high impact on perceived scarcity and on 2027–2030 pricing.

Indicators to watch: TNAC, MSR communications, auction volumes, the legislative calendar, and draft proposals.

Effects for Italian companies covered by the ETS: carbon budgeting, hedging, and investment decisions

ETS budgeting in 2026 works better if you start from a range rather than a single number. A practical approach is to build three internal curves (bear, base, bull) using recent anchors: 2024 average €64.8/t, a market indication for 2025 around €73.4/t, and a stress test above €85/t to capture periods of tension. The goal is not to guess the price, but to estimate a carbon cost envelope over 12–36 months and then over 5 years. Source for 2024: EEA.

Hedging should be split into two different problems: compliance and economic risk. Compliance buying concerns how many EUAs you need and when you buy them (spot or forward). Economic risk concerns how the EUA affects margins, sales prices, and energy contracts. If the ETS becomes “more managed,” it can change the trade-off between linear hedging (purchases spread over time) and opportunistic hedging (windows linked to auctions, TNAC, policy events).

Auctions are an operational piece that is often underestimated. Planning around the EEX calendar and clearing-price dynamics helps avoid buying “all at once” at the wrong moments, especially if internal liquidity is constrained. Source: EEX, EU ETS auctions.

Investment decisions should be linked to the ETS and to funding, not treated as two separate tracks. Auction revenues finance the Innovation Fund and the Modernisation Fund, and this matters for companies evaluating calls and co-funding tied to industrial decarbonisation. Source: European Commission, auctioning and funds.

For logistics and maritime, shipping entered the ETS in 2024 with a phase-in. For an Italian import–export company—Italy is a major EU trading and port country—the practical point is contractual: carriers’ ETS surcharges, pass-through clauses, Incoterms, and price-risk management in transport contracts. Source: official FAQs on maritime ETS.

Real buyer questions, operational answers:

  • “How much to hedge and when?” Start from monthly EUA demand and define a minimum and maximum hedge band, linked to triggers (price, TNAC, policy events).
  • “Is it better to build an internal desk or use a broker?” If volumes are small, you often need clear governance more than a desk. If volumes are large, risk-management discipline becomes the real value.
  • “How do I link the EUA budget to energy prices?” Treat EUAs and power as correlated risks via spark/dark spreads and pass-through clauses. Correlation is not stable, so work with scenarios.
  • “How does risk change if they revise the MSR/cancellation?” The weight of regulatory risk and information windows (TNAC, drafts, legislative process) increases. This should be built into the hedging policy, not left as a side comment.

Implications for buyers of voluntary credits: crowding-out risk, quality, and claims in a more “managed” ETS price environment

A more predictable ETS can crowd out part of voluntary demand, but not in a linear way. If the EUA price becomes politically dampened and less volatile, some companies may prefer compliance and internal abatement because the business case is “cleaner.” If the ETS remains high or jittery, interest grows in mixed strategies—internal reductions plus voluntary credits to neutralise residual emissions—with greater attention to claims.

From 2026, CBAM enters the operational phase and the ETS price is a reference for CBAM certificates. This shifts the supply-chain conversation: less “offsets vs decarbonisation” and more “show me the emissions content and the reduction trajectory.” General context source on CBAM:

Credit quality becomes more

  • Additionality: would the project have happened without credit revenue?
  • Permanence: reversal risk and management mechanisms (e.g., buffer pool).
  • Leakage: emissions shifting elsewhere.
  • MRV and verification: measurement, reporting, independent verification.
  • Accounting alignment and claims: what you are really claiming (neutrality, contribution, reduction) and within which boundaries (Scope 1-2-3).

B2B example: an Italian manufacturer that exports and buys credits for product lines may face industrial buyers asking for more granular evidence, such as Scope 1-2-3, EPDs, and Product Carbon Footprints. In this scenario, tolerance for “generic” offsets decreases and demand rises for traceability and consistency between internal reductions and credit use.

Strategic note: separate “credits for compensation” from “voluntary climate finance” as a contribution. Integrating the EUA price into communications can make sense, but avoid simplistic comparisons like “€X voluntary vs €Y ETS” because they do not measure the same thing in terms of integrity and obligations.

Operational checklist 2026: signals to monitor (Commission, Parliament, MSR data, auctions) and how to prepare the corporate CO2 plan

The number-one signal remains the TNAC and everything it implies for the MSR. Set up an internal radar with alerts for TNAC publications and Commission communications on MSR impacts, including reduced or increased auction volumes. Source: MSR communication and auction-volume reduction.

2026 auction volumes should be planned using the official calendars. From 2026, funding for the Social Climate Fund via ETS auctions also starts, and this can enter the political narrative about the “right level” of the price and about stability. Source: revised 2025–2026 auction calendars.

The political process should be followed with tracking tools, because volatility can become headline-driven. The European Parliament’s Legislative Train is useful for understanding timing and the status of dossiers linked to the MSR. Source: European Parliament, Legislative Train.

Minimum deliverable for a corporate CO₂ plan for 2026:

  1. Emissions baseline and production forecast.
  2. Monthly EUA demand plan and hedging policy (limits, responsibilities, escalation).
  3. Carbon budget in the rolling forecast and scenario update rules.
  4. Abatement pipeline with MACC and sensitivity to the EUA price.
  5. Governance across Treasury, Legal, ESG, and Operations.
  6. Reporting for audits and stakeholders, with decision traceability.

Dashboard KPIs, to be updated on a defined cadence:

  • EUA spot and Dec-xx
  • Energy spreads relevant to the sector
  • Auction clearing prices and weekly volumes
  • TNAC and MSR communications
  • News on cancellation and MSR reform
  • Progress on maritime ETS or other sector impacts if relevant for the supply chain Auction source: