THEMA Consulting Group is pleased to announce the release of the Spring 2025 edition of our Green Values Outlook, providing an in-depth analysis of the European Emission Trading System (EU ETS) and the Guarantees of Origin (GO) market. This report offers price projections, examines historical trends, pinpoints key price drivers, and assesses the market impacts of recent and anticipated regulatory changes.
This edition features an enhanced focus on the industry sector and its abatement options in the EU ETS chapter, reflecting its increasing significance as power market emissions have strongly declined in the past years. In the GO chapter, we delve deeper into the potential effects of a granular system.
EU Emissions Trading System (EU ETS)
Price Developments:
EU ETS prices have recently fluctuated, reaching highs of nearly 85 EUR/tCO2e before falling below 70 EUR/t. While the overall market design remains supportive of price increases, economic uncertainties contribute to volatility. A rapid decline in the emissions cap, removal of allowances, and phase-out of free allocations are expected to drive prices above 100 EUR/tCO2e by 2028.
Role of the Industry Sector:
The power sector continues to drive emissions reductions, but the industry sector is now the primary emitter within the ETS. Decarbonization efforts in industry are becoming central to future carbon pricing trends. The impact of the EU’s Clean Industrial Deal, the Carbon Border Adjustment Mechanism (CBAM), and efforts to develop low-carbon industries will be crucial in shaping emissions and allowance demand.
Long-Term ETS Design:
Post-2030, the ETS framework is expected to evolve, remaining a cornerstone of EU climate policy while expanding into additional sectors. A stricter emissions cap will be implemented to meet the EU’s 2040 and 2050 climate targets. Carbon dioxide removals (CDR) are anticipated to play an increasing role in offsetting emissions from hard-to-abate sectors, with further regulatory proposals expected soon.
Guarantees of Origin (GO) Market
Market Outlook:
GO prices remain historically low due to strong renewable energy generation, abundant hydropower, and stable nuclear output. While the EU’s Corporate Sustainability Reporting Directive (CSRD) is expected to stimulate demand, weak overall electricity consumption limits price recovery.
Shift to Granular Matching:
By 2030, GO pricing is expected to shift to an hourly matching system with trade constraints between bidding zones, leading to greater price differentiation based on location and technology. Flexible generation technologies may command premiums, while solar GO prices could face downward pressure due to oversupply.
Supply and Demand Developments:
- Supply Growth: GO issuance is increasing due to expanding renewable energy capacity and the expiration of subsidy programs. However, Power Purchase Agreements (PPAs) could absorb a significant portion of new supply.
- Demand Growth: CSRD is driving demand for market-based Scope 2 emissions reporting, particularly from industrial consumers like data centers.
Regulatory Developments:
- Norway: Maintains its role as a key GO supplier after rejecting export restrictions. Domestic demand has surged due to low prices and early CSRD compliance.
- Germany: Potentially ending the double marketing ban, though unlikely in the short term, could lower GO prices significantly by 2035.
- EU Omnibus Package: While reducing CSRD coverage by 80%, large corporations still face reporting obligations, maintaining a strong demand base for GOs.
Overall, while short-term GO prices remain subdued, long-term trends point to structural changes in demand and pricing mechanisms, influenced by regulatory shifts and market developments.
For deeper insights and detailed price projections for both the EU ETS and GO markets under our different scenarios that are in line with our Power Market Outlooks, we invite you to explore the full THEMA Green Values Outlook. Please get in touch with us for more information.
