{"id":12597,"date":"2026-09-05T20:08:02","date_gmt":"2026-09-05T20:08:02","guid":{"rendered":"https:\/\/dev.eucarbonmarkets.com\/?p=12597"},"modified":"2026-09-06T12:45:37","modified_gmt":"2026-09-06T12:45:37","slug":"eua-overview-other-sectors-and-price-projection","status":"publish","type":"post","link":"https:\/\/eucarbonmarkets.com\/?p=12597&lang=en","title":{"rendered":"EUA Overview, Other Sectors, and Price Projection"},"content":{"rendered":"\n<h2 class=\"wp-block-heading has-black-color has-text-color has-link-color wp-elements-1\">A Current Assessment of the EU Emissions Allowance System<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">A practical guide to EUA compliance, factors affecting prices, and the European Commission\u2019s latest reform proposal. We clearly examine the differences between current legislation and the proposed changes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What Is an EU Emission Allowance (EUA)?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">An EU Allowance, or EUA, is the main compliance unit of the European Union Emissions Trading System (EU ETS). One EUA represents the right to emit one tonne of carbon dioxide equivalent greenhouse gases.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Companies covered by the EU ETS monitor their emissions, have them independently verified, and surrender allowances corresponding to their annual verified emissions through the Union Registry.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">EUAs are created within a defined regulatory cap. They can be auctioned, allocated free of charge to eligible installations, transferred between registry accounts, banked for future use, and traded in spot or derivatives markets.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">EUA prices are therefore not administratively fixed. Prices are determined by the interaction between regulatory supply and demand arising from current and expected emissions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Difference Between an EUA and a Voluntary Carbon Credit<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Although the term \u201ccarbon credit\u201d is sometimes used commercially to describe an EUA, this can create legal and accounting confusion.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Project-based carbon credits represent verified emission reductions or carbon removals generated outside the cap-and-trade system. An EUA, by contrast, is an allowance within a mandatory emissions cap.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This distinction is important for compliance, registry transactions, valuation, risk management, and environmental claims.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How Does the EU ETS Turn Emissions Into a Compliance Obligation?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The system operates through five main stages:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">1. Cap<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The EU sets the maximum amount of emissions allowed within the system and gradually reduces this cap over time. As a result, the amount of new allowances entering the market decreases over the long term.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">2. Allowances Enter the Market<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Allowances enter the market through auctions and free allocation for eligible activities. Auction schedules and allocation rules can affect short-term supply.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">3. Monitoring, Reporting and Verification<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Companies monitor, report and verify their annual greenhouse gas emissions. Verified emissions determine the amount of allowances that must be surrendered.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">4. Trading<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Companies may buy, sell or bank allowances depending on their current positions and risk policies. The secondary market provides price discovery and liquidity.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">5. Surrender<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">A sufficient number of allowances must be surrendered by the annual deadline. A short position therefore becomes a mandatory purchasing requirement rather than an optional trading decision.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Which Sectors Does the EU ETS Cover?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The system covers power and heat generation, energy-intensive industries, aviation and, since 2024, maritime transport.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It applies across EU Member States as well as Iceland, Liechtenstein and Norway, and operates in connection with the Swiss ETS.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As the cap declines, the amount of new allowances entering circulation also decreases. However, auction rules, free allocations, the Market Stability Reserve and other regulatory measures can influence supply.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Companies that reduce their emissions may sell surplus allowances or bank them for future use. Companies whose emissions exceed their available allowances must purchase additional EUAs.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why Do EUA Prices Change?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">EUA prices reflect expected scarcity across multiple compliance years. Market movements cannot be explained by a single factor.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Key price drivers include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The cap and auction supply<\/li>\n\n\n\n<li>Fuel switching between coal, lignite and natural gas in the power sector<\/li>\n\n\n\n<li>Industrial production in sectors such as steel, cement, refining and chemicals<\/li>\n\n\n\n<li>Temperature, wind, hydropower and solar generation<\/li>\n\n\n\n<li>Policy changes involving the EU ETS Directive, CBAM and the Market Stability Reserve<\/li>\n\n\n\n<li>Market positions of investment funds, energy companies and industrial participants<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">An EUA is a liquid market instrument, but its ultimate demand is driven by regulation. For a covered company, therefore, the question is not simply \u201cwhere will the price go?\u201d It is also important to determine when and how the mandatory obligation should be secured and under which risk management rules.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">EU ETS in the Maritime Sector: 2026 Status<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Shipping companies entered the EU ETS in 2024.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The system generally covers:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>100% of emissions from voyages between EU ports,<\/li>\n\n\n\n<li>100% of emissions while vessels are at berth in EU ports,<\/li>\n\n\n\n<li>50% of emissions from voyages between an EU port and a non-EU port.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">The surrender obligation has been phased in:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">2024 emissions: 40%<br>2025 emissions: 70%<br>2026 and onwards: 100%<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Therefore, the surrender due in September 2026 relates to 70% of verified 2025 emissions.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The 2026 reporting year is also the first year in which methane and nitrous oxide are included within the EU ETS greenhouse gas scope for maritime transport. Particularly for LNG and other fuels with significant methane slip profiles, calculating carbon costs based only on CO2 is no longer sufficient.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">17 July 2026 EU ETS Revision Proposal<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Important: On 17 July 2026, the European Commission presented a targeted revision proposal for the EU ETS. This proposal is not yet legislation in force.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For the changes to enter into force, they must be negotiated and adopted by the European Parliament and the Council.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">A More Gradual Cap Reduction After 2030<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The Commission proposes an annual cap reduction of 3.7% for 2031\u20132035 and 1.7% for 2036\u20132040.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The objective is to keep the EU ETS aligned with the EU\u2019s 2040 climate target while making the transition more predictable for industry.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Compared with a more aggressive continuation of the current reduction factor, the proposed pathway could leave more allowances in the market during the second half of the 2030s. This could reduce the risk of excessive scarcity, but it does not eliminate the declining cap or the need for deep decarbonisation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Financing Industrial Decarbonisation<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The proposal aims to direct a larger share of the value generated by the carbon market toward industrial transformation.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The Commission particularly highlights:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A new Industrial Decarbonisation Bank aiming to mobilise EUR 100 billion,<\/li>\n\n\n\n<li>An ETS Investment Booster before 2030,<\/li>\n\n\n\n<li>Continued support through the Innovation Fund and Modernisation Fund,<\/li>\n\n\n\n<li>Member States directing 50% of national ETS revenues toward decarbonising ETS sectors.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">This approach also changes the commercial framework of the carbon allowance market. While the carbon price remains a cost for unabated emissions, a larger share of the value generated is intended to support investments that reduce future allowance requirements.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Free Allocations and CBAM<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The Commission proposes continuing free allocations after 2030 while linking them more strongly to decarbonisation investments.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The proposal also foresees approximately EUR 6 billion in additional free allocation support for industry during 2026\u20132030.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For sectors covered by CBAM, the Commission proposes slowing the phase-out of free allocations and extending the current 2034 end date to 2038.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">However, the 2038 date is not yet in force. Importers and non-EU producers should not yet base their definitive CBAM budgets on this date.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Market Stability, Carbon Removals and International Credits<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The proposal foresees strengthening the Market Stability Reserve and establishing mechanisms through which permanent carbon removals could be centrally recognised.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It also considers the potential purchase of high-quality international credits under strict conditions during 2036\u20132040.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This does not mean that companies will be able to directly use voluntary carbon credits instead of EUAs. The Commission\u2019s approach involves a centrally managed system subject to specific quantity and quality criteria.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Maritime, Aviation and Municipal Waste<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The Commission also proposes strengthening the existing ETS coverage of aviation and maritime transport and gradually extending emissions trading to municipal waste incineration.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Municipal waste is planned to enter the system gradually from 2031, reaching full coverage from 2034.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The inclusion of certain smaller maritime vessels is also under consideration.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How Could the Proposal Affect EUA Prices?<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The proposal contains elements that could both ease supply conditions and support demand. It would therefore be misleading to say that the reform will only increase or only decrease EUA prices.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Factors that could reduce scarcity include a slower cap reduction, additional free allocations and potential centrally recognised carbon removals.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Factors that could support value include the cap continuing to decline each year, stronger maritime and aviation coverage, the inclusion of municipal waste, and the Market Stability Reserve.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">A Disciplined Approach to EUA Purchasing and Hedging<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">For companies with compliance obligations, strategy should begin with calculating the actual obligation rather than forecasting prices.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Companies should:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Maintain a continuously updated emissions forecast by installation, vessel, voyage or business unit.<\/li>\n\n\n\n<li>Establish management-approved minimum coverage ratios and decision dates.<\/li>\n\n\n\n<li>Purchase allowances gradually rather than leaving the entire obligation until the final month.<\/li>\n\n\n\n<li>Define market-position authority, maximum open positions and counterparty limits.<\/li>\n\n\n\n<li>Regularly reconcile registry balances, broker records, invoices and emissions forecasts.<\/li>\n\n\n\n<li>Conduct stress tests for both rising and falling prices.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\">Practical Checklist for 2026\u20132027<\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Verify surrender obligations and deadlines for each regulated entity.<\/li>\n\n\n\n<li>Include methane and nitrous oxide in maritime emissions models from 2026 onwards.<\/li>\n\n\n\n<li>Track the 17 July proposal separately from current legislation.<\/li>\n\n\n\n<li>Maintain two separate scenarios: \u201ccurrent legislation\u201d and \u201cproposal adopted.\u201d<\/li>\n\n\n\n<li>Align free allocation assumptions with CBAM exposure.<\/li>\n\n\n\n<li>Document EUA purchasing authority and risk management processes.<\/li>\n\n\n\n<li>Monitor not only spot price charts but also auction calendars, regulatory discussions and Market Stability Reserve publications.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Frequently Asked Questions<\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">Is an EUA the Same as a Voluntary Carbon Credit?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">No. An EUA is a mandatory compliance allowance created within the EU ETS cap. Voluntary carbon credits are generally generated by emission reduction or carbon removal projects outside this system.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Can Companies Covered by the EU ETS Use Voluntary Carbon Credits Instead of EUAs?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Under current EU ETS rules, no. The 17 July 2026 proposal considers centrally managed permanent carbon removals and certain international credits in the future, but does not provide companies with unlimited direct offset use.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Has the 17 July 2026 Proposal Already Changed the Cap?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">No. It is a European Commission proposal and must pass through the EU legislative process. Current legislation remains applicable until any changes enter into force.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Why Can EUA Prices Fall Even When the Cap Is Declining?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Short- and medium-term prices are also influenced by energy demand, industrial production, auction supply, weather conditions, hedging activity, existing surplus allowances and financial positioning.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What Is the Most Important First Step for a Shipping Company?<\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Build a verified and continuously updated exposure forecast linking voyage emissions, allocation of obligations under charter agreements, allowances held in the registry and the annual surrender schedule.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Important Disclaimer<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">This article is for general informational purposes only. It does not constitute legal, tax, investment or trading advice. Organisations should verify current legislation, guidance from competent authorities, contractual allocation of obligations and their own risk limits before taking any action.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A Current Assessment of the EU Emissions Allowance System A practical guide [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":11189,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[58],"tags":[90],"class_list":["post-12597","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-eu-ets-en","tag-eu-ets-en"],"_links":{"self":[{"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=\/wp\/v2\/posts\/12597","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12597"}],"version-history":[{"count":2,"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=\/wp\/v2\/posts\/12597\/revisions"}],"predecessor-version":[{"id":12645,"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=\/wp\/v2\/posts\/12597\/revisions\/12645"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=\/wp\/v2\/media\/11189"}],"wp:attachment":[{"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12597"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12597"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/eucarbonmarkets.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12597"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}