Carbon Market Watch — 2026-03-31

Market Pulse

• EU ETS: Prices remain under pressure from ongoing political debate over ETS reform. Analyst consensus (Reuters survey, January 2026) forecast EU allowances averaging €92.65/tonne in 2026, but recent intervention signals and geopolitical turbulence have introduced significant downside uncertainty. The EU is also drafting plans to end the automatic cancellation of excess carbon permits — a structural change that could reduce future price volatility.

• UK ETS: No fresh price data published within the past 24 hours. Monitoring continues as the UK market tracks EU ETS directional moves amid overlapping reform pressures.

• Other compliance markets: No data from China, California, RGGI, or Korea published within the coverage window (after 2026-03-29).

• Trading volume/sentiment: A new analysis published within the past 24 hours flags that geopolitical shocks — including instability stemming from the Middle East conflict — are increasingly shifting EU carbon market dynamics, introducing risk premiums and positioning uncertainty for compliance market participants.

Top Stories

Geopolitical Shocks Now a Structural Risk Factor for EU Carbon Markets

A fresh analysis (published ~19 hours ago) finds that geopolitical crises are becoming a persistent risk factor for the EU Carbon Market in 2026 — not just cyclical noise. Policy instability tied to the Middle East conflict and diverging member-state positions on competitiveness vs. climate ambition are reshaping how investors price EU allowances. The piece warns that participants need strategies robust enough to weather rapid sentiment reversals.

1 sources

enkiai.com

enkiai.com

WSJ Investigation Reignites Doubts Over Brazilian Amazon Carbon Offsets

A Wall Street Journal investigation — reported on by Carbon Herald approximately 17 hours ago — has raised fresh doubts about the legitimacy of a disputed carbon offset project in Brazil's Amazon. The report intensifies broader concerns about voluntary carbon market credibility, with accompanying research suggesting questionable credits may be far more widespread than previously acknowledged. The findings put renewed scrutiny on forest-based offset methodologies and the certifiers that underpin them.

EU Drafts Plan to End Automatic Cancellation of Excess Carbon Permits

Reuters reported (5 days ago, still within recent context) that the EU is considering ending the automatic cancellation of excess carbon permits within the ETS — a move aimed at reducing future price volatility. EU officials indicated the change is designed to give policymakers more flexibility to manage supply and smooth out price spikes without resorting to more disruptive interventions. This structural reform proposal is closely watched by compliance market participants.

Policy & Regulation

• CBAM fully operational since January 2026: The EU's Carbon Border Adjustment Mechanism entered into force on 1 January 2026 after a coordinated deployment across all EU Member States. The CBAM Registry is now integrated with national customs import systems. From the start of 2026, importers of products in six high-carbon-leakage sectors (including steel, cement, and aluminium) pay a border carbon tax pegged to the EU ETS allowance price. By 2030, all sectors covered by the EU ETS will fall under CBAM scope.

• ETS reform timeline pressure: EU leaders are expected to formally request that the European Commission propose ETS reforms by July 2026 — a deadline that is now less than four months away. With member states deeply divided (Poland and Hungary pushing for softer curbs; the Netherlands and others urging caution), any reform package will face intense political negotiation. For market participants, the July deadline creates a concrete policy risk window that could drive volatility in EU allowance prices in Q2 2026.

Voluntary Market & Offsets

• Brazil Amazon offsets under fire: The Wall Street Journal's investigation into a disputed Brazilian Amazon REDD+ project — covered by Carbon Herald approximately 17 hours ago — is the most significant voluntary market development in the past 24 hours. New accompanying research suggests "questionable credits" may be widespread across the voluntary carbon market, not isolated to the project in question. This represents a continued challenge for Verra and other certifiers, who must defend their verification methodologies against growing scrutiny from mainstream financial media.

• Blue carbon market growth projection: A PR Newswire release from approximately 6 days ago (just within coverage relevance) projects the global blue carbon market — covering mangrove, seagrass, and coastal wetland offset projects — will grow from USD 1.0 billion in 2025 to USD 10.3 billion by 2036. Key players cited include Verra, Gold Standard, and Conservation International, with Asia-Pacific, India, and the US named as primary growth regions. Blue carbon is increasingly positioned as a higher-integrity alternative to some contested forest offset methodologies.

Analysis: What This Means

• The EU ETS is at a political inflection point. The July 2026 reform deadline, combined with member-state divisions and geopolitical pressures, creates a concentrated risk window for EU allowance prices. Market participants should expect elevated volatility in Q2 as reform proposals crystallize — or fail to.

• CBAM is now a live pricing mechanism. With CBAM fully operational, the link between EU ETS prices and import costs for carbon-intensive goods is no longer theoretical. Weakening EU ETS prices (driven by political intervention) would directly reduce CBAM revenues and potentially undermine the mechanism's trade policy objectives — a tension that Brussels has not yet fully resolved.

• Voluntary market integrity remains under structural threat. The WSJ Brazil investigation is the latest in a multi-year pattern of mainstream scrutiny of forest offset projects. The repeated questioning of Verra-certified REDD+ credits is nudging corporate buyers toward removal-based credits (biochar, DACCS, blue carbon) — a shift that is gradually restructuring voluntary market demand.

• Geopolitics is now a carbon market variable. The convergence of energy price pressures (linked to Middle East conflict), EU competitiveness debates, and carbon market reform creates an unusually complex macro environment for carbon pricing. Participants who treated the ETS as a pure climate policy instrument are now pricing in political risk more explicitly.

What to Watch Next

1. EU ETS reform proposal (by July 2026): The European Commission faces a politically-mandated deadline to table ETS reform proposals. Watch for draft legislation or consultation documents in May–June 2026 that could sharply move EU allowance prices.

2. CBAM quarterly certificate pricing: The price of CBAM certificates is calculated based on the quarterly average EU ETS auction price. The Q1 2026 calculation (covering January–March) will be published shortly — this will be the first real-world CBAM price signal for importers under the fully-live mechanism.

3. Voluntary market certifier responses: Following the WSJ Brazil investigation, watch for official responses from Verra and other certifiers, as well as any corporate buyers announcing shifts in their offset procurement strategies. Standards updates or methodology revisions from Verra could be accelerated by the renewed scrutiny.