A new analysis from non-profit climate change think tank Sandbag revealed that the European carbon market will remain oversupplied until the end of the decade as the “MSR won’t wipe out enough allowances to create scarcity.”

Analyzing the supply and demand balance until 2030 and considering the current trends regarding the power generation and installed capacity of renewable energy sources, Sandbag concluded that the surplus in the EU ETS could reach up to 1,7 million allowances. 

Source: Sandbag

While the figure is well below the total surplus of 2,260 million allowances at the end of 2023, it “contrasts with previous market expectations of sharpening shortage ahead”, concluded Montel News.

However, the exact surplus for the end of the decade is hard to predict as it depends on other  factors such as the free allocation benchmarks and the rebound in industrial activity “which impacts both emissions and free allocation.” For example, in a scenario which assumes high benchmarks and high growth for industrial sectors, the surplus could drop slightly below 1 billion allowances.

However, another scenario, assuming a “green” hydrogen production of 10 million tonnes annually, might turn surplus into a deficit of EUA in circulation of up to 370 million allowances, despite some surplus locked up in reserves such as MSR.