EU carbon allowance prices fell 3% on Monday as traders reacted to growing uncertainty around the next phase of the Emissions Trading System reform. The decline reflects nervousness about how tighter supply rules and potential changes to the market stability reserve will affect allowance availability from 2026 onward. The move comes ahead of key policy decisions expected later this year. Market participants are watching for signals on the timeline for phasing out free allowances and the pace of the carbon border adjustment mechanism rollout. Any shift in these parameters could significantly alter the supply-demand balance in the EU carbon market. For those tracking carbon markets, this price action is a reminder that policy risk remains the dominant driver of EUA prices. The next few months of legislative debate will likely determine whether the current bearish sentiment continues or reverses.
