<- Back
Summary

What are the main drivers of the EUA price?

Summary

EU Allowance (EUA) prices are driven by supply and demand. EUA supply is intentionally decreasing to drive long-term price appreciation for green finance, while demand fluctuates in the short and medium term based on factors like energy prices, economic conditions, weather, and technological advancements. This makes EUAs potentially suitable for long-term investing in renewable energy despite short-term volatility.

Return to Blog
Sommaire
Book a call

Understand what drives EUA prices in order to be able to analyze and predict their moves. As any other financial assets, they are subject to the basic economic principles of supply and demand. Carbon allowances are unique - they have a decreasing supply by design, bringing a steady long term price appreciation. The demand for EUAs, on the other hand, relies on many different shorter-term factors. Here is your supply- demand guide to the carbon markets price moves on the short, medium and long term. 

Supply-side factors: The long-term drivers of EUA Prices

A market with a purpose

The intentional reduction in the supply of EUAs drives long-term price appreciation. Unlike other markets, the EU ETS was established with a purpose: reducing greenhouse CO2 emissions across the European Union. To achieve this goal, regulators establish climate change targets with a set deadline and calculate the total amount of CO2 emissions that can be released while still meeting the environmental objectives. They then distribute this overall carbon budget across each year until the deadline.

Decarbonizing without harming the economy 

EUAs are structured to have a decreasing supply over time because regulators are slowly reducing the allowable CO2 emissions from industries. This gradual aspect of the reduction is essential to avoid harsh economic impacts, as certain levels of CO2 emissions are necessary for ongoing production. Economically and socially, we cannot afford to simply stop all processes from one day to the next. 

A steady long term climb

Here are the main features of the EU ETS supply. It is predictable, regulators decide the supply of EUAs in advance, so the market can anticipate future changes. It is also steadily declining, the number of CO₂ allowances available decreases each year in a controlled, gradual manner. As you may recall from your macroeconomics classes, when supply decreases in a market, prices rise over the long term.

How demand affects short- and medium-term fluctuations in EUA prices

To make it easier to understand, we can see demand for EUAs as the carbon emissions that occur at any given time. Below are the main factors that determine how much carbon needs to be emitted for the economy to continue operating.

Energy Prices

Energy prices impact the demand for EUAs. If renewable energy becomes cheaper than fossil fuels, industries switch to these cleaner options, reducing CO2 emissions and lowering EUA demand. Conversely, if fossil fuel prices drop, industries might use more carbon-intensive energy sources, increasing CO₂ emissions and raising EUA demand.

Macroeconomic Environment

Economic downturns, such as recessions, decrease industrial activity and energy use, lowering CO2 emissions and EUA demand. In contrast, a strong economy leads to increased industrial activity and energy consumption, raising EUA demand and prices.

Weather Conditions

Weather conditions can influence EUA demand by affecting energy consumption. Cold winters increase heating needs, which can lead to more CO2 emissions, while hot summers boost air conditioning use and energy consumption. As global warming gets more severe, extreme weather events can cause fluctuations in the demand for EUAs and affect their prices.

Technological advancement

As technology progresses, industries can be enabled to emit different amounts of CO2 while maintaining the same productivity levels. These adjustments can influence the demand for EUAs and have an impact on their prices.

The uneven path of long-term price growth

The decreasing supply of EUAs is intended to drive their long-term price appreciation. However, a range of factors can lead to short- and medium-term price volatility. This combination of predictable long-term growth with short-term fluctuations makes EUAs a good asset for a buy-and-hold investment strategy.

Do you like this article?

Share it with your network and introduce Homaio to those interested in impact investing!

The Homing Bird

A newsletter to help you understand the key challenges of climate finance.

Sign up to our newsletter

Utimate guide to carbon markets

Dive into the world of carbon markets, where economics, finance, and environmental science converge. Get your ultimate guide now.

Thank You !
Find our guide with the following link 👉
Download whitepaper
Oops! Something went wrong while submitting the form.
White Paper homaio

Do you like this article?

Share it with your network and introduce Homaio to those interested in impact investing!

Understanding in depth

How to Save for Retirement
July 7, 2025

How to Save for Retirement

Preparing for retirement is crucial for securing your financial future. This article explores key strategies and top investment options, including life insurance, the PER (Retirement Savings Plan), real estate (SCPIs), and the PEA (Equity Savings Plan). We also highlight green investments with SRI labels, such as SRI life insurance and PERs, green ETFs, green bonds, green SCPIs, sustainable real estate crowdfunding, and Homaio's innovative carbon quota market solution. Learn how to adapt your savings strategy based on your age to maximize returns and secure a comfortable future, all while contributing to the ecological transition.

How to Invest €100,000 in 2025: A Complete Guide to Optimizing Your Investments
July 3, 2025

How to Invest €100,000 in 2025: A Complete Guide to Optimizing Your Investments

How to optimize your €100,000 in 2025? This comprehensive guide helps you navigate investment options, from secure savings accounts to dynamic placements like carbon quotas. Learn how to assess your profile, understand 2025 market trends, and implement a diversified strategy, while avoiding common mistakes, to grow your capital.

Sustainable ETFs: How to Invest in Responsible Funds in 2025?
July 2, 2025

Sustainable ETFs: How to Invest in Responsible Funds in 2025?

This comprehensive guide explores sustainable ETFs, a growing investment trend for 2025. It defines what sustainable ETFs are, highlights key types like climate, renewable energy, and water funds, and provides criteria for choosing the best-performing options. The article also discusses the limitations of sustainable ETFs, such as greenwashing and passive influence, and presents alternative sustainable investment solutions like ISR funds, green bonds, and carbon allowances, emphasizing the importance of diversification for impactful investing

Understanding in depth

No items found.

You might also like

How to Save for Retirement
July 7, 2025

How to Save for Retirement

Preparing for retirement is crucial for securing your financial future. This article explores key strategies and top investment options, including life insurance, the PER (Retirement Savings Plan), real estate (SCPIs), and the PEA (Equity Savings Plan). We also highlight green investments with SRI labels, such as SRI life insurance and PERs, green ETFs, green bonds, green SCPIs, sustainable real estate crowdfunding, and Homaio's innovative carbon quota market solution. Learn how to adapt your savings strategy based on your age to maximize returns and secure a comfortable future, all while contributing to the ecological transition.

How to Invest €100,000 in 2025: A Complete Guide to Optimizing Your Investments
July 3, 2025

How to Invest €100,000 in 2025: A Complete Guide to Optimizing Your Investments

How to optimize your €100,000 in 2025? This comprehensive guide helps you navigate investment options, from secure savings accounts to dynamic placements like carbon quotas. Learn how to assess your profile, understand 2025 market trends, and implement a diversified strategy, while avoiding common mistakes, to grow your capital.

Sustainable ETFs: How to Invest in Responsible Funds in 2025?
July 2, 2025

Sustainable ETFs: How to Invest in Responsible Funds in 2025?

This comprehensive guide explores sustainable ETFs, a growing investment trend for 2025. It defines what sustainable ETFs are, highlights key types like climate, renewable energy, and water funds, and provides criteria for choosing the best-performing options. The article also discusses the limitations of sustainable ETFs, such as greenwashing and passive influence, and presents alternative sustainable investment solutions like ISR funds, green bonds, and carbon allowances, emphasizing the importance of diversification for impactful investing

You might also like

No items found.