Source: Intermodal According to Ms. Chara Georgousi, Research Analyst with Intermodal, “looking ahead, market participants should pay close attention to the potential shift in the historically positive correlation between EUA prices and European natural gas prices. Traditionally, this correlation stemmed from fuel-switching dynamics, where higher carbon prices incentivized a switch from emissions-intensive coal to cleaner natural gas for power generation.
The underlying logic follows that if gas prices rise, coal becomes comparatively more competitive, potentially increasing coal generation and thus boosting demand for EUAs. Conversely, a drop in gas prices enhances natural gas’ position at the top of the merit order, reducing additional demand for carbon permits”. She added that “however, as the EU progresses further with its decarbonization agenda and renewable capacity expands, this fuel-switching mechanism could diminish from 2026 onwards.
At that point, with coal power plants being progressively phased out, the EUA price is projected to trade significantly above the technical levels that facilitate coal-to-gas switching. In this future scenario, an increase in natural gas prices may no longer translate to higher EUA prices. Instead, elevated gas costs could dampen overall energy demand, spur greater efficiency measures and accelerate the adoption of non-fossil fuel alternatives – ultimately putting downward pressure on emissions and EUA prices.
Conversely, chea.
