Carbon Market Watch — 2026-10-15

EU ETS Price Update

EU Allowance (EUA) futures and spot prices have climbed to EUR 88 per tonne in early October 2026, marking a notable upward trajectory from previous levels. This increase is primarily attributed to "buying ahead" of the upcoming European Council talks on ETS reform, where political uncertainty is driving speculative activity. Traders are positioning themselves against potential supply tightening or policy shifts discussed in Brussels. An additional factor influencing the market is a looming proposal from Italy and the Czech Republic to suspend the Market Stability Reserve (MSR) transfer, which has added a layer of political risk to the current price rally.

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Compliance Markets Roundup

• EU ETS: The price of €88/t reflects a market reacting to both energy price fundamentals and specific political drivers in Europe. The market is currently influenced by the anticipation of the October Council meeting, where decisions on the ETS structure may alter future supply dynamics.
• CBAM (Border Adjustment): While not a trading system itself, the Carbon Border Adjustment Mechanism is heavily impacting compliance costs for importers. The Q3 2026 CBAM certificate price was set at €82.32/tCO₂, a 9.4% increase, moving the mechanism from reporting to actual financial liability for importers of covered goods. This divergence between EUA spot prices (€88) and CBAM certificates (€82.32) highlights the lagging nature of border adjustment calculations.
• California Cap-and-Invest: As the state transitions from "Cap-and-Trade" to "Cap-and-Invest," covered entities are now permitted to use qualifying offset credits for up to 6% of their compliance obligation starting in 2026 (up from 4%). This shift is expected to increase demand for high-quality voluntary credits that meet California Air Resources Board (CARB) standards.

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Voluntary Carbon Market

• Market Size Projection: The voluntary carbon market (VCM) is forecasted to hit approximately €3 billion in 2026, with projections exploding to €15 billion by 2035. This growth is fueled by stricter regulations and the adoption of integrity standards like the Integrity Council for the Voluntary Carbon Markets (ICVCM) Core Carbon Principles (CCPs).
• Credit Standards: There is a growing distinction in pricing for credits aligned with CCPs. For instance, C-GEO futures contracts, which comprise tech-based offset projects from the Verra registry aligning with CCPs, are gaining traction as corporate buyers seek "high-quality" assets amidst growing scrutiny over greenwashing.
• Registry Trends: Major registries like Verra and Gold Standard continue to refine methodologies to meet the new ICVCM standards. The market is seeing a bifurcation where credits with robust additionality and permanence proofs command premiums, while lower-tier credits face liquidity issues.

Policy & Regulation

• US Probe into EU CBAM: On October 8, 2026, the Office of the U.S. Trade Representative (USTR) published a request for comments on the impact of the EU’s Carbon Border Adjustment Mechanism (CBAM) on U.S. producers. The USTR is specifically seeking information on costs, regulatory burdens, and competitive effects, signaling potential trade friction if the U.S. deems the mechanism discriminatory or overly burdensome for American exporters.
• EU ETS2 Expansion: The European Commission has confirmed it has no plans to make further changes to the planned extension of the EU ETS to buildings and road transport (ETS2), despite political noise. Climate Commissioner Wopke Hoekstra reaffirmed that more than two-thirds of EU countries support keeping the implementation on track, providing some regulatory certainty for sectors facing new costs starting in 2027.

Analysis: Transatlantic Carbon Friction

The opening of a formal comment period by the USTR regarding the EU’s Carbon Border Adjustment Mechanism (CBAM) marks a pivotal moment in global climate trade policy. Until now, the U.S. response to CBAM was largely rhetorical or handled through diplomatic channels. The shift to a formal regulatory inquiry suggests that Washington is preparing for potential retaliatory measures or trade disputes under World Trade Organization (WTO) frameworks. The USTR’s request focuses on "costs, regulatory burdens, and competitive effects," indicating a concern that the EU is effectively exporting its carbon tax to U.S. manufacturers without adequate reciprocity.

This development creates a complex dynamic for multinational corporations. Companies exporting steel, aluminum, cement, or fertilizer from the U.S. to the EU now face dual regulatory pressures: domestic pressure to avoid "protectionist" carbon policies and foreign pressure to pay for embedded emissions. The divergence in carbon pricing—where the EU ETS trades at €88 while the U.S. lacks a federal carbon price—means the CBAM cost will be borne entirely by importers or passed through to consumers, potentially distorting trade flows.

Furthermore, this probe could influence the design of future carbon markets globally. If the U.S. challenges the WTO compatibility of CBAM, it may delay the implementation of similar mechanisms in other jurisdictions like the UK or Canada. Conversely, it may accelerate the U.S. adoption of a federal carbon price or a sector-specific border adjustment to level the playing field for American exporters who also sell to Europe. The outcome of this comment period will likely shape the next decade of international climate-trade relations.

What to Watch Next Week

• USTR Comment Period Activity: Monitor submissions from major U.S. industrial lobbies (steel, aluminum) to gauge the severity of the trade friction concerns regarding CBAM.
• EU Council Meeting Outcomes: Watch for concrete decisions from the October Council meeting regarding the proposed Italian-Czech plan to suspend MSR transfers, which could cause immediate volatility in EUA prices.
• Voluntary Market Auctions: Keep an eye on upcoming auctions for high-integrity forestry and tech-based removal credits, as buyers adjust portfolios ahead of year-end compliance deadlines.
• Article 6 Guidance: Look for updates on the operationalization of Article 6 of the Paris Agreement, particularly regarding corresponding adjustments that allow countries to use international credits toward NDCs.