Carbon permits in the European Union have recently climbed to their highest levels since August 2023. The rise reflects tighter supply, policy decisions, and shifting market demand under the EU Emissions Trading System (ETS).
The ETS is the world’s largest cap-and-trade system for greenhouse gas emissions. It mandates large emitters to buy allowances for the carbon dioxide they emit. These allowances are known as EU Allowances (EUAs).
EUAs are now trading at a price over €92 per tonne — the strongest level in about 18 months. This rise shows that companies and markets expect fewer allowances to be available in the future as the EU tightens its emissions cap.
What Is the EU Emissions Trading System?
The EU ETS began in 2005 as a tool to reduce greenhouse gas emissions through market forces. It sets a cap on total emissions from major sectors such as power generation, manufacturing, and aviation. Companies must hold enough allowances to cover their emissions each year.
The cap reduces over time, meaning fewer EUAs are issued. This creates scarcity. As allowances become scarcer, their price tends to rise, which increases costs for polluters. In theory, this pushes companies to reduce emissions or invest in cleaner technology.
In 2026, the system also overlaps with the Carbon Border Adjustment Mechanism (CBAM), a tax on imported carbon-intensive goods. CBAM began to apply in January 2026 and makes carbon costs visible on imports like steel and cement. The measure aims to cut down on “carbon leakage.” This happens when industries move production to areas with cheaper carbon prices.
Recent Price Moves: Highest Since August 2023
In early January 2026, EU carbon permits climbed as high as about €91.82 per tonne on EU markets, up from lower levels earlier in 2025. Now, it’s trading at over €92 per tonne, showing 27% increase from January 2025 prices. The rise represents a fourth consecutive weekly gain in allowances for the December 2026 contract.
The price rise reflects tightening supply — fewer allowances are available through auctions and free allocations. Reduced supply increases competition among companies that must surrender EUAs to match their emissions. This dynamic pushes the price higher.
Market analysts also note that colder weather and more heating needs in winter often boost industrial energy demand. This can lead to higher carbon prices during the season.
Why Prices Have Risen?
The recent uptick in EU carbon prices is driven by several key factors:
- Reduced Supply of Allowances:
The EU continues to tighten its emissions cap and reduce the number of new allowances issued. Estimates from the European Exchange auction calendar and Market Stability Reserve show that auction volumes will drop. They are expected to fall from about 588.7 million EU Allowances in 2025 to around 482.4 million in 2026. A stronger cap reduces the total pool of tradable EUAs, creating scarcity and upward pressure on prices.
- Policy Signals and Reform Expectations:
Investors and companies anticipate future regulatory tightening. The EU’s long-term climate goals include cutting net emissions by 90% by 2040 compared with 1990 levels. Such policy signals can strengthen confidence that carbon costs will rise further.
- Market Confidence and Funds:
Investment funds have increased their holdings of EU carbon futures. Trading positions and speculation can also influence price momentum, especially as market sentiment shifts toward tighter futures.
- Compliance Demand:
Industries covered by the ETS are required to surrender allowances to match their emissions by compliance deadlines. As deadlines near, buying activity can increase, adding short-term upward pressure on prices.
- Carbon Border Adjustment Mechanism:
With CBAM now active, imported products from outside the EU face carbon costs similar to domestic industries. This mechanism can reduce free allowance allocations and tighten supply further.
Looking Back and Ahead: Carbon Price Trends and Forecasts
Carbon prices in the EU ETS have fluctuated over recent years. Prices surged above €100 per tonne in early 2023. Then, they eased back in 2024 and 2025. This decline was due to shifting market conditions and wider economic factors.
In 2024, the average price of EU ETS carbon permits was around €65 per tonne, down from €84 per tonne the year before. High prices in 2023 reflected strong policy signals from the Fit for 55 climate package and global energy disruptions.
Looking ahead, analysts and forecast models expect prices to continue rising over the coming decade:
- A survey of market participants predicts that the average EU ETS carbon price will rise to almost €100 per tonne from 2026 to 2030. This increase will happen as demand exceeds supply.
- Energy market analysts predict that the average price could hit about €126 per tonne by 2030. This rise is due to stricter caps and wider emission coverage.
- Under the EU ETS II framework, starting in 2027, more sectors will be included, like buildings and transport. In some scenarios, prices might average €99 per tonne from 2027 to 2030.
- BNEF’s EU ETS II Market Outlook projects carbon prices reaching €149 per metric ton ($156/t) by 2030, driving substantial emissions reductions.
Overall, these forward estimates imply that allowance prices may continue to rise as the EU strengthens its emissions targets to meet climate goals.
Emissions Reductions Under the ETS
The EU ETS has contributed to measurable emissions reductions. In 2024, emissions under the system were roughly 50% lower than in 2005. This progress is set to help the EU meet its 2030 goal of a 62% reduction from 2005 levels. The decline was driven mainly by cuts in the power sector, with increased renewable energy and a shift away from coal and gas.
Renewable energy growth, including wind and solar, played a role. Increases in renewables helped lower emissions by reducing reliance on fossil fuels.
The drop in emissions may lead to higher demand for allowances in the long run. With fewer emissions, companies will need more allowances to meet the cap.
What Higher Carbon Prices Mean for Industry
Higher carbon prices affect the European economy in many ways. For polluting industries, rising carbon costs increase operating expenses. Companies may invest more in cleaner technologies to reduce their allowance needs. This can accelerate decarbonization technology adoption.
Policy makers face the challenge of balancing climate goals with economic competitiveness. Some EU governments, like France, want price limits in the ETS. This could stop big swings in carbon costs. It would also help industries plan better.
The Market Stability Reserve (MSR), a mechanism to absorb excess allowances, also plays a role. It intends to reduce surplus permits and stabilize prices. Combined with the tightening cap, the MSR tends to push prices higher over time.
The ETS’s expansion to include more sectors — such as maritime transport and potentially buildings and road transport under EU ETS II — expands the share of emissions subject to carbon pricing. This broadening can further tighten supply and push prices up.
Why EU Carbon Prices Matter Beyond Europe
The EU ETS remains the largest carbon market in the world. According to global carbon pricing data, carbon pricing instruments currently cover about 28% of global greenhouse gas emissions, up from about 24% previously. The EU’s system is a key driver of this trend.
Many national and regional carbon markets have prices much lower than the EU’s. This shows differences in climate policies and economic situations. The ETS’s tightening emissions cap, reduced auction volumes, and shifting market sentiment all play roles in supporting higher carbon prices.
Forecasts suggest that prices may continue upward in the years to come, potentially averaging over €100 per tonne by the end of the decade. Meanwhile, the ETS continues to help reduce emissions in key sectors and supports the EU’s broader climate targets.
These price trends and policy developments make the EU carbon market a central piece of Europe’s climate strategy and an important bellwether for global carbon pricing efforts.
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Insetting program design starts with your supplier map. The carbon claim comes much later.
Consider a coffee procurement team that funds a farm intervention before checking its sourcing data. The supplier aggregates coffee lots from several regions. The buyer lacks farm-level traceability. Another purchaser expects to report the same outcome. A more attractive project brochure solves none of these problems.
If the distinction between a value-chain intervention and a purchased credit is still open, read CCC’s Insetting vs Offsetting guide before you set the brief.
Insetting program design begins with the purchasing relationship and works outward. You need to decide 1) where an intervention belongs, 2) what business problem it addresses, 3) who pays for it, 4) how results will be measured, and 5) what the evidence will let you say about them. This five-step playbook turns that sequence into a procurement plan.
Step 1: Insetting program design starts with supplier mapping
Start with the commodities that matter most to your Scope 3 inventory and sourcing continuity. Ask finance for spend by supplier, sustainability for the emissions baseline, and category managers for origin and volume records. Then identify which suppliers can trace material to a jurisdiction, sourcing region, producer group, or individual land-management unit.
The level of traceability affects what you can account for. Under the GHG Protocol Land Sector and Removals Standard, the spatial boundary for purchased land-based products depends on the traceability associated with each volume. Farm-specific factors or removals require physical traceability through an acceptable chain-of-custody model. A contract with a tier-one trader, by itself, does not establish a link to the farms behind its deliveries.[1]
Build a first-pass table with five columns: commodity and annual volume; supplier and origin; current traceability level; land-use and production risks; and the business owner who can change the purchasing terms. Mark missing data plainly. A blank cell is cheaper to fix before a program starts than after a claim is drafted.
If your company sets an SBTi Forest, Land and Agriculture target (FLAG), keep its land-related target boundary separate from energy and industry emissions. The current FLAG guidance also requires relevant companies to assess primary deforestation-linked commodities in their value chains.[2]
Step 2: Choose a commodity and jurisdiction for a pilot
Select one supply corridor where the sourcing connection can be established and procurement has a reason to stay. A useful pilot has repeat purchases, suppliers willing to share records, an intervention matched to a diagnosed problem, and a defined plan to measure the result. Carbon potential alone is a poor selection rule if the supplier cannot deliver the crop your business needs.
Compare candidate regions on land-use risk, supplier concentration, local rights and tenure, the availability of baseline data, and exposure to drought, erosion, or forest conversion. Check the relevant legal requirements separately. A nature project does not satisfy a due-diligence obligation merely because it has a carbon method attached.
Consider a coffee buyer sourcing from two districts. In the first, producer-group records identify the farms, while recent dry seasons have increased rejected green coffee lots. In the second, deliveries pass through several intermediaries and farm origins are unknown. Pilot shade management in the first district, with local agronomic advice and quality checks built into the plan. The buyer can trace purchases there and test the intervention against a defined sourcing problem.
Use a short decision memo to record why the selected corridor beats the alternatives, what remains uncertain, and what would stop the pilot. That memo is the first control against a project drifting toward whatever happens to photograph well.
Step 3: Design the supplier engagement and commercial model
The intervention needs an owner on each side of the contract. Decide who supplies planting material or training, who maintains the practice, who bears the cost if a harvest disappoints, and how long the buyer expects to purchase from participating suppliers. Where smallholders participate, budget cash flow and technical support for practices that offer a later return.
Put these terms in a supplier agreement or pilot addendum. It should cover eligible farms and volumes, consent to data collection, access for monitoring, any land or carbon rights that matter, benefit sharing, and what happens if the purchasing relationship ends. Ask local counsel and producer representatives to review the arrangement. The Accountability Framework is a useful reference for supply-chain work involving forests, ecosystems, and human rights.[3]
Avoid assigning an automatic carbon benefit to the buyer. The contract should say which party has the right to report each outcome, how overlapping claims will be checked, and how any issued credits will be handled. A reduction reported in a buyer’s inventory cannot simply be sold for someone else’s offset claim without an accounting review. SBTi FLAG guidance excludes purchased credits used as offsets from near-term FLAG target achievement.[2]
Set commercial measures beside environmental ones: delivered volume, rejection rate, supplier retention, and procurement cost. They tell you whether the program works as a supply-chain investment, even if carbon accounting takes longer to resolve.
Step 4: Build monitoring, reporting, and verification before rollout
Agree on the baseline and data flow before paying for a full rollout. Identify the land units or sourcing regions in scope, the practices that change, the records suppliers already keep, and the additional measurements the program requires. Decide which data can come from field visits, transaction records, or remote sensing, and who checks each source.
For carbon, separate three questions. Did the practice happen? Did emissions or removals change under an applicable method? Can the buyer attribute a defensible share to its purchased goods without double counting? The GHG Protocol’s 2026 guidance includes dedicated chapters on spatial boundaries, data and methods, evaluating actions, credited outcomes, and assurance.[1] These are distinct jobs. A photograph of a planted tree answers only part of the first.
CCC’s MRV and Additionality article explains the separate evidence questions a project reviewer will ask.
Create an evidence file for every reporting period: dated supplier and farm records, purchase volumes, methods and emission factors, uncertainty, quality checks, and changes from the baseline. Specify who can challenge the data and how corrections are recorded. If a project also seeks credit certification, keep project accounting and corporate inventory accounting separate. The GHG Protocol says its land standard focuses on entity-level inventories and does not set the rules for credit certification.[4]
Start with the minimum viable measurement design that can survive review. Add complexity when the pilot tells you which data actually changes a decision.
Step 5: Decide what can be reported and claimed
Insetting program design needs reporting rules before the marketing copy. Procurement, sustainability, finance, and legal should agree on four distinct outputs: operational performance; observed land or nature outcomes; inventory effects, if the accounting criteria are met; and any separately issued credits. One dashboard can display them, but they should not share a single unqualified headline.
SBTi FLAG guidance allows certain land-based removals within a company’s operations or supply chain to contribute to FLAG pathways, subject to criteria including permanence, traceability, data quality, and allocation. It does not allow purchased offsets to meet near-term FLAG targets.[2] Eligibility therefore depends on evidence and the applicable target rules, not on calling an activity “insetting.”
Draft a claims register. For each proposed sentence, record the period, boundary, data owner, calculation method, reviewer, and whether the result is measured, estimated, or still a goal. If the evidence supports only “we funded a pilot with 200 farms,” say that. Do not turn a funding fact into a verified emissions reduction.
What good looks like by year three
Treat year three as a review point, not a promised payback date. A mature pilot should have mapped participating supply volumes, a stable supplier agreement, a repeatable data collection process, and a comparison of commercial and environmental results against the baseline. It should also have a documented answer for outcomes that cannot be included in the buyer’s inventory.
Scale only where the pilot improves a sourcing decision and the evidence can follow the product. If neither condition holds, redesign the intervention or change the corridor. A disciplined program can conclude that a site is unsuitable. That is useful procurement intelligence.
Discuss your insetting program with CCC
Carbon Credit Capital designs nature-based supply chain investments around sourcing needs and measurable sustainability outcomes. Schedule a consultation with our carbon and sustainability experts to map your tier-one supplier network, FLAG exposure, and first pilot decision.
Sources
[1] GHG Protocol, Land Sector and Removals Standard, version 1.1, and companion Guidance, June 2026: https://ghgprotocol.org/land-sector-and-removals-standard ; https://ghgprotocol.org/land-sector-and-removals-guidance
[2] Science Based Targets initiative, Forest, Land and Agriculture Science-Based Target-Setting Guidance, version 1.2, March 2026, especially pp. 16–17, 37, and 41: https://sciencebasedtargets.org/resources/files/SBTiFLAGGuidance.pdf
[3] Accountability Framework initiative, Accountability Framework and guidance for companies: https://accountability-framework.org/
[4] GHG Protocol, Frequently Asked Questions: Land Sector and Removals Standard, questions 10 and 18: https://ghgprotocol.org/blog/frequently-asked-questions-land-sector-and-removals-lsr-standard
Nature-based carbon investments deserve consideration when they address a specific business dependency and produce outcomes you can measure. Imagine Moonbucks, a global coffee roaster planning next season’s espresso blend. It is considering natural Grade 4 coffee from Jimma, in southwestern Oromia, Ethiopia. Its sourcing decisions affect the roasting schedule and the cash tied up in coffee purchases. Moonbucks needs to understand which measures could protect that supply, what they would cost and how it would judge the results.
1. Define the sourcing problem before choosing a project
Moonbucks needs a dependable component for its espresso blend. Its procurement team wants continuity of volume and an agreed cup profile. Replacing a shipment at short notice could require new sample approval and changes to the blend, and given the schedules for cultivation, processing, and freight delivery, is practically impossible. Moonbucks needs to get this right, and its initial concern is inconsistent deliveries. It commissions an assessment of the supplying farms and post-harvest chain. The questions cover land condition, harvest availability and whether drying or storage problems are affecting saleable lots.
This distinction changes the investment brief. A tree-planting proposal cannot be assumed to fix drying problems. Better storage cannot restore eroded land. The team must establish which problem exists before selecting the response.
CCC’s guide to finding nature-based solutions in your supply chain explains where to look. Here, the next task is to turn a broad concern into a testable proposal.
2. Develop nature-based carbon investments around the actual supply chain
The assessment would trace Moonbucks’ purchases back through the exporter and supplying producer groups. Which farms supply the contracted lots? Who controls land-management decisions? How long does the buyer expect to maintain the purchasing relationship?
Furthermore, Jimma natural Grade 4 cannot be treated as interchangeable with every Ethiopian coffee. Moonbucks would need to test any substitute against its own blend and quality requirements.
Suppose Moonbucks’ assessment identifies an opportunity to maintain shade trees and restore vegetation along exposed streambanks. The IPCC describes agroforestry as a way to store carbon in vegetation and soil, with potential benefits for erosion control and water quality.1 Moonbucks would need local advice on species, growing conditions and maintenance before deciding how these measures fit its sourcing plan.
The proposal now has a defined sourcing connection and a candidate intervention. The next steps are to test its effect on production, assess carbon eligibility and build the financial case.
3. Compare the proposal with other ways to protect supply
WBCSD’s Nature-based Solutions Blueprint recommends comparing nature-based options with other responses across their benefits and costs.2 For Moonbucks, that means evaluating the landscape proposal alongside drying improvements, storage controls and alternative sourcing arrangements.
The product’s natural-process designation matters. Moonbucks should examine the drying and dry-milling chain alongside land conditions. Its team would check storage practices, contamination risks and incoming-lot quality to see whether problems arise before or after the coffee leaves the farms.
The revised proposal might combine land stewardship with separate post-harvest controls. Each component needs its own purpose and budget. A sustainability label should not obscure which activity is expected to solve which problem.
The project develops as the evidence improves. Its scope should follow the diagnosis rather than preserve the first idea unchanged.
4. Establish what the carbon outcome could count toward
Moonbucks’ sustainability team now tests the proposed carbon case separately from the sourcing case. Is the objective a measurable change in Moonbucks’ value-chain emissions, verified credits for separate voluntary use, or distinct outcomes under carefully defined arrangements?
Scope 3 covers value-chain emissions. A purchasing relationship alone does not prove that a farm intervention can be included in Moonbucks’ inventory. The team needs an applicable accounting method, defensible boundaries and evidence supporting attribution.
SBTi’s FLAG Guidance (forest, land and agriculture), version 1.2, says purchased credits used as offsets cannot meet near-term FLAG or energy and industry targets. Eligible land-based removals are subject to accounting requirements.3 Moonbucks needs to test its proposal against those rules before including an outcome in its targets.
For Moonbucks’ Jimma proposal, maintaining existing trees and establishing new vegetation could involve different carbon questions. Specialists must examine the baseline and additionality, meaning what changes because the project proceeds. They must also assess measurement and the risk that stored carbon is lost. CCC’s MRV and additionality article introduces those tests.
Until that work is complete, Moonbucks should not budget an assumed Scope 3 reduction or credit-sale receipt. Direct emissions reductions remain the priority.
5. Build a financial case that survives weaker assumptions
Moonbucks’ finance team would now build a multi-year budget. UNEP’s State of Finance for Nature 2023 compares current finance with the investment needed to meet climate, biodiversity and land-restoration goals.4 The company would cost its proposed activities, farmer participation and ongoing monitoring. Verification, where required, is a separate expense. Maintenance and responsibility for replacing failed plantings must remain visible after the initial establishment budget ends.
Operational benefits need equally careful treatment. If fewer rejected lots reduce emergency purchasing, count that saving once. Do not add “supply resilience” as another financial benefit when it represents the same avoided cost.
Moonbucks should compare a base case with slower benefits, higher implementation costs and no carbon revenue. It should also distinguish production outcomes from quality and shipment outcomes. A single good harvest would not prove that the landscape intervention caused better delivery performance.
A project can remain worth funding even when its carbon case needs more work. That decision must rest on the operational evidence and the company’s objectives, without unsupported environmental claims.
6. Fund a pilot with a clear expansion decision
Moonbucks’ first approval would fund a bounded pilot, rather than commit the entire sourcing program. Before spending, Moonbucks would agree on participating farms, responsibilities and the evidence needed at review.
Its scorecard could track farmer participation, implementation costs and plant survival, alongside accepted coffee volumes and lot-quality results. Carbon measurements would follow the selected method. Farm-level traceability must connect the intervention to the actual sourcing relationship.
Suppose Moonbucks’ review later finds that storage changes explain most quality improvements, while the land measures need longer observation. Those findings would shape the next decision: expand the proven component, adjust the landscape work or pause further spending. They would not justify crediting all improvements to tree planting.
This gives nature-based carbon investments a practical place in a multi-year strategy. Funding increases as the evidence supports it, and the project can change direction before a larger commitment.
Discuss a sourcing opportunity with CCC
Carbon Credit Capital’s nature-based supply-chain investment service uses its Dual-Value Model to examine supply-chain economics alongside potential sustainability outcomes.
Schedule a consultation to discuss your sourcing exposure and the questions to resolve before allocating capital.
Sources
- Intergovernmental Panel on Climate Change (IPCC), Climate Change 2022: Mitigation of Climate Change, Chapter 7, Agriculture, Forestry and Other Land Uses, section 7.4.3.3 (Agroforestry).
- World Business Council for Sustainable Development (WBCSD), Nature-based Solutions Blueprint, 5 June 2024.
- Science Based Targets initiative (SBTi), Forest, Land and Agriculture Science-Based Target-Setting Guidance, version 1.2, March 2026, section 3.1.4, pp. 37–38.
- United Nations Environment Programme (UNEP), State of Finance for Nature 2023, 2023.
A plastic credit funds the collection of plastic waste in places where no formal system exists to collect it. Each credit represents a measured, independently audited quantity of plastic taken out of the environment or returned to use, tracked on a public registry.
