Last week ended with heavy losses on the European carbon market, as EUA Dec’26 settled at €70.68, its lowest close since early May 2025. The contract dropped 10% over the week alone, marking the steepest weekly decline in more than two years and extending losses to a fourth consecutive week.

The market posted sharp losses following remarks by the German Chancellor at an industry summit in Antwerp. “If it is not the right instrument, we must be very open to revising it or at least postponing it,” Merz said, according to Bloomberg. Although he later adopted a more measured tone, describing the EU ETS as an effective tool delivering positive results, EUA Dec’26 still tumbled by around €6 in the wake of his comments.

Similar calls have been made in recent months by industry representatives as well as Austrian, Czech, Belgian, Italian, and Slovak politicians, all voicing concerns about the EU ETS and its impact on EU industry and competitiveness.

French President Emmanuel Macron, who has positioned himself as a firm advocate of the European Union’s climate ambitions, nevertheless acknowledged shortcomings in the system. He said the EU ETS “is not functioning well for some countries because we have the issue of marginal costs in countries that still rely on fossil fuels,” adding that “there is also speculation taking place in the ETS allowance market. And so the ETS price, which should be around €30–€40, is now above €80, and that weighs heavily on certain economies.”

Any structural changes to the EU ETS architecture would have to go through a formal EU legislative process, which could take up to two years to negotiate and implement. Any such modifications affecting the overall supply–demand balance would be unlikely to take effect before 2028.

However, political uncertainty over potential changes to the EU ETS framework has prompted investors to step back, adding further bearish pressure on carbon prices. “Funds have been very, very long, and a lot of them have been washed out now,” said Jason Ying, commodities strategist at BNP Paribas, as quoted by Platts.

On Monday morning, the carbon market appeared to stabilize following last week’s turmoil. However, prices remain “highly headline-sensitive and tactically traded, with limited strategic positioning likely until we see clearer policy and/or economic signals,” according to BBVA analysts.

At the upcoming European Council on 19–20 March, EU leaders are set to address the future design of the EU ETS, potentially offering greater clarity and guidance to market participants.