A new report from Bank of America Global Research warns that EU carbon allowance prices could climb to multi-year highs this winter, as rising natural gas prices encourage greater reliance on coal, pushing up emissions and demand for EU allowances (EUAs).

“Putting it all together, we expect EUAs could trade up to €100 this winter as high European gas prices spur further growth of coal generation,” according to the Bank of America report.

The bank also warns that the Carbon Border Adjustment Mechanism (CBAM) could further tighten the European carbon market by increasing demand for emission permits, adding upward pressure on allowance prices as the EU gradually phases out free allowances for domestic producers.

Despite a potential increase in coal-fired power generation, the bank expects overall EU emissions to decline this year, supported by reductions in other sectors, particularly road transport, where higher fuel costs have encouraged consumers to drive less or switch to electric vehicles, reducing demand for conventional fuels.

However, the closure of numerous coal-fired power plants and the rapid expansion of renewables have left limited room for further gas-to-coal switching, with coal accounting for just 9.2% of Europe’s electricity generation mix last year. This leaves renewables to offset some gas-fired generation, although their ability to do so will largely depend on weather conditions, particularly wind speeds and solar availability.

On a more positive note, the bank expects EU carbon allowance prices to drop below €80 in the second half of 2027, provided that LNG exports from the Middle East return to normal levels and new projects come online as planned.