European carbon prices plunged sharply in yesterday’s session after reports emerged that the Italian government is calling for a suspension of the EU ETS, echoing a similar request made by the Slovak Prime Minister in January and remarks from German Chancellor Friedrich Merz, who earlier this month suggested a potential “pause” of the EU ETS.

The additional request from Italy is intensifying pressure already building in the market ahead of the system’s scheduled review later this year, deepening uncertainty over the scheme’s political backing and future direction.

“We will ask the European Commission to suspend it until it is thoroughly reviewed, to intervene both on the emission benchmarks and on the mechanisms for allocating allowances, including postponing the phase-out of free allowances, and to finally introduce a stable support mechanism for exporting companies, not yet fully defined in the CBAM reform,” Urso said in a statement.

The Dec’26 EUA front-year contract sold off aggressively to an intraday low of €69.25, shedding over 4% in the immediate aftermath of the headlines. The move later found some support, with prices rebounding from the lows to settle at €70.97, still down 2.22% on the day.

“The reaction to these headlines is crazy. I can’t see how the legislation gets unwound to this extent,” a UK-based carbon trader told Platts. The sharp price response underscores how headline-driven the market has become, with sentiment highly sensitive to any signals that political backing for the EU’s climate agenda may be wavering.