EU ETS Carbon Price in 2025: What It Is, Where It Is Heading, and How It Feeds Into CBAM Costs

How the EU ETS Works#

The EU Emissions Trading System is a cap-and-trade mechanism covering approximately 10,000 industrial plants and power generators across the EU, plus airlines operating within Europe. The total number of EU allowances (EUAs) in circulation is set by a declining annual cap, which tightens each year to drive emissions reductions consistent with the EU's climate targets. Companies that emit less than their allowance allocation can sell surplus allowances; those that emit more must buy additional allowances. Allowances are traded on exchanges including the European Energy Exchange (EEX) and ICE, with the price set by supply and demand in those markets. The EU sets the cap, runs the auctions at which most allowances are sold, and adjusts the Market Stability Reserve (a buffer mechanism) to prevent prices from becoming either too high or too low for policy purposes.

Current ETS Price Range and Historical Context#

EU ETS prices averaged approximately €5-15 per tonne during 2017-2020, which was widely regarded as too low to incentivise meaningful emissions reductions. A significant reform package (the Market Stability Reserve strengthening and cap acceleration) drove prices sharply higher. By 2021, prices had reached €50 per tonne; they peaked near €100 per tonne in February 2023 before falling back. In 2024, prices traded in a range of approximately €50-75 per tonne, with an annual average around €60-65. This price trajectory reflects the increasing stringency of the EU's climate targets — the 2030 target was tightened to 55% emissions reduction versus 1990 levels under Fit for 55 — and the gradual phase-out of free allowance allocations to industry.

The Phase-Out of Free Allowances: Why CBAM Costs Will Rise#

Currently, EU manufacturers in covered sectors receive a substantial portion of their ETS allowances for free — a transitional measure to protect EU industry competitiveness while carbon prices were low. As CBAM is phased in from 2026, free allowances will be progressively reduced: by 2.5% in 2026, 5% in 2027, and so on until free allowances are fully eliminated by 2034. This phase-out serves a dual purpose: it increases the cost pressure on EU manufacturers to reduce emissions, and it removes the competitive disadvantage argument that previously justified free allocations. For CBAM importers, the consequence is that ETS prices — and therefore CBAM certificate prices — are expected to be structurally supported by reduced supply of free allowances in the market as EU manufacturers must buy more allowances commercially.

Price Forecasts to 2030 and Their Implication for Import Costs#

Carbon market analysts including BloombergNEF, ICIS, and Wood Mackenzie have forecast EU ETS prices rising to the €80-120 range by 2030, with the wide range reflecting uncertainty about EU industrial production levels, renewable energy build rates, and policy decisions. If CBAM certificate prices track ETS prices — as designed — an importer with 10,000 tonnes of embedded CO₂ in annual imports faces a cost of €800,000-€1,200,000 by 2030 at those price levels, compared to €600,000-€650,000 at current 2024 prices. For steel and aluminium sectors with thin margins, this is a structural cost increase that will affect sourcing decisions, product pricing, and competitive positioning relative to domestic EU production. AskBiz tracks the current weekly ETS price and updates your projected CBAM cost automatically.

What High ETS Prices Mean Strategically for Importers#

Rising ETS and CBAM prices change the competitive dynamics of steel and aluminium sourcing for the EU market in specific ways. Suppliers in countries with their own carbon pricing (Canada, UK post-Brexit ETS, South Korea, China's national ETS) can deduct their domestic carbon price from CBAM obligations — reducing their effective CBAM cost relative to suppliers from countries without carbon pricing. This creates a commercial incentive to prefer suppliers from jurisdictions with carbon pricing. Lower-carbon production processes — electric arc furnace steel versus basic oxygen furnace, for example — will attract lower CBAM costs per unit, creating a premium for green steel that did not previously exist. Importers who model their supply chain's carbon intensity now are better positioned to manage CBAM costs as prices rise over the 2026-2034 phase-in period.

• The EU Emissions Trading System is the world's largest carbon market, covering around 40% of EU greenhouse gas emissions.
• ETS allowance prices set the cost of CBAM certificates from 2026.
• In 2024, ETS prices averaged approximately €60-65 per tonne.