The EU's carbon market (EU ETS) will end new allowance auctions by 2039 under the Fit for 55 reform, but the market will continue using existing carbon allowances to drive Europe towards climate neutrality by 2050. A 2026 revision will be crucial in determining the market's long-term future, potentially linking with other carbon markets and including carbon removal credits to promote green finance and responsible investment. Investing in carbon allowances impacts carbon neutrality and the European carbon market.
There will be no further carbon emissions forever - nor will there be issuance of new EUAs indefinitely. Under current legislation, the European Union Emissions Trading Scheme’s (EU ETS) auctions will come to an end by 2039. However, there’s no need to worry—the carbon market is here to stay until it achieves its long-term mission to bring Europe to climate neutrality by 2050.
To set their ambitious environmental goals in tangible terms, the EU Commission has introduced the Fit for 55 reform. The aim is simple - limit global warming by cutting carbon emissions. Yet achieving it is less straightforward. One of the measures adopted is making the EU ETS supply volumes decrease at a faster pace in order to accelerate industrial decarbonization efforts. The Fit for 55 reform introduces new rules that will end European Union Allowances (EUA) auctions after 2039 due to updated supply cut rates.
The end of the EU ETS primary market - no more additional allowances injected into the economy - will bring an important change to the EU ETS. Yet, it doesn’t mean the market will come to an end. Even though auctions will stop, a large number of existing EUAs will still be available. The latest data for 2023 when it comes to the number of carbon allowances in circulation printed at 1 111 736 535. This surplus of allowances will still remain for some time until all EUAs are “consumed” for compliance reasons. The market will remain active and operational after 2039.
After 2039, the question is how long the existing stock of EUAs will last before it is fully used up. Also, the longevity of the EU ETS market will be driven by how rapidly industries decarbonize. As emissions are reduced and as new technologies are adopted, the demand for EUAs declines. On the other hand, increasing economic activity and the upcoming sector expansions will drive up the demand for EUAs.
In 2026, a major revision of the EU ETS will take place, which will be decisive for the long-term balance of supply and demand. This revision will determine whether the market will link with other carbon markets to have improved liquidity. Additionally, there will be discussions about potentially including carbon removal credits for the last hard to abate emissions. These decisions will impact the timing of when the allowances in circulation will be exhausted.
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