What BNEF’s long-term EU ETS forecast signals for compliance buyers
The key message for compliance buyers is simple: the EU ETS is still getting tighter. Covered emissions are down by about 50% versus 2005, and they fell 5% year on year in 2024, which reinforces the long-term squeeze on EUA demand.
That matters because a forecast like €185/t by 2035 is not just a price call. It is a signal that carbon may stay expensive across multiple planning cycles, not just in the next auction or quarter.
BNEF’s long-dated pricing narrative has already been read by the market as a sign of long-dated scarcity. Its EU ETS II forecast of up to €149/t in 2030 has become a useful benchmark for how high carbon prices can stay when policy keeps the cap tight.
For industrial buyers, the real issue is not the spot price alone. It is the forward curve. A path toward €185/t would raise marginal production costs for sectors such as cement, steel, chemicals, and refineries, with direct consequences for procurement, carbon budgeting, and pass-through pricing.
That shifts the internal question from “what does carbon cost today?” to “what carbon cost should we use to approve investments and supply contracts?” For B2B buyers, that affects the choice between financial hedging, PPAs, fuel switching, and efficiency capex.
The first operational question becomes how to protect margin against a steeper curve. That is where the quality of the regulatory signal matters, especially around the MSR and expectations for surplus or shortage.
Why near-term MSR reform may not move prices much, but still matters for expectations
The Market Stability Reserve is still the main surplus absorber. The Commission published a 2025 TNAC of 1,148,049,585 allowances, with 275,531,900 allowances transferred into the MSR between September 2025 and August 2026, so the system is still draining supply in a meaningful way.
In the near term, MSR changes do not always trigger an immediate price breakout. Markets usually price the policy direction and cap trajectory before they fully react to a technical update.
That is why the real driver is the expectation of persistent scarcity, not the headline of the reform itself. The market cares about where the system is heading, not only about one reserve adjustment.
The Commission’s 15 April 2025 consultation confirms that the ETS and MSR are under review ahead of 2026. For risk teams, that adds an option value to future rules, even when the spot price looks calm.
For industrial buyers, the practical effect is that policy risk stays embedded in forward contracts, swaps, and procurement strategies for EUA coverage, especially when they need to hedge across several fiscal years.
If the MSR does not move prices tomorrow, it can still change how procurement teams build hedge curves and when they place buying tranches.
How industrial hedging strategies are likely to evolve as carbon costs rise
Higher expected carbon prices and less downside volatility are pushing ETS-exposed companies away from tactical hedging and toward more structured carbon risk management. That usually means laddered hedges, staggered purchases, budget stress tests, and closer links with commodity hedging.
Hedging is not only about buying EUA forwards. It also means managing basis risk between carbon cost, energy prices, and industrial output. Steel, cement, and paper producers, for example, need to model cost per tonne under different plant-utilisation scenarios.
The wider ETS scope also matters. Shipping is now part of the system, and the regulatory direction points toward a broader carbon framework, so companies with logistics, maritime exposure, or European supply chains face liabilities across more than one perimeter.
For B2B operators, the strategy is starting to look more like industrial treasury management. They need an internal carbon price, a comparison with EUA forwards, and a rule for deciding whether to fix costs early or carry the risk in P&L.
That leads to the next question. If carbon moves toward €185/t, which industrial projects become bankable now, and which assets risk becoming stranded before the end of their accounting life?
What €185/t means for capex timing, asset lifetimes, and decarbonisation planning
A €185/t carbon price changes project economics because it makes avoided carbon costs much more visible over 10 to 15 years. That speeds up the comparison between retrofit, electrification, efficiency upgrades, fuel switching, and new low-carbon processes.
For heavy assets such as clinker kilns, blast furnaces, steam crackers, and high-temperature furnaces, the present value of carbon cost can become large enough to pull capex decisions forward. Projects that once looked easy to delay may no longer look that way.
Companies are no longer planning only around cost of capital. They are planning around total regulatory ownership cost: CAPEX, energy, EUA exposure, and likely compliance obligations. That tends to support business cases where policy can help close the gap.
That is especially true where funding or support mechanisms exist, including the Innovation Fund, state aid, or Contracts for Difference. In practice, carbon pricing and industrial policy are becoming harder to separate.
The Commission has also reinforced the industrial logic of the ETS through the Innovation Fund and new initiatives for process heat and industrial decarbonisation. The carbon market is increasingly part of industrial strategy, not just compliance.
The next issue is the hardest one. For CCS and other hard-to-abate sectors, the real need is not a dramatic price headline. It is regulatory certainty that can unlock investment, storage, permitting, and offtake.
Why CCS and other hard-to-abate sectors need price certainty more than price headlines
For CCS, cement, lime, steel, and chemicals, a high carbon price helps, but it is not enough. These sectors need stable signals on support duration, recognition of stored CO₂, access to transport and storage infrastructure, and credible permitting timelines.
The Commission’s 2025 move to identify European oil and gas producers that must provide operational CO₂ injection capacity by 31 December 2030 is a concrete sign that policy is shifting from decarbonisation theory to industrial build-out of the CCS chain.
The Industrial Carbon Management strategy and the Clean Industrial Deal are meant to make CCS, CCU, and permanent removals more consistent across sectors. That matters because hard-to-abate industries need certainty on storage availability and on how residual emissions will be treated.
Demand-side support is changing too. The growth of Innovation Fund auctions and related ETS-linked financing shows that policymakers are trying to narrow the gap between carbon price and project bankability, especially for energy-intensive plants.
In practice, industrial buyers are asking less about “how high will EUA go?” and more about “how much can I rely on a stable framework to invest now and stay competitive in 2030 to 2035?” That is where price becomes industrial strategy.
