Carbon Quotas Under Pressure

In our latest collaboration with Manager Bulgaria, we discussed about

• How the crisis around the Strait of Hormuz has once again exposed Europe’s vulnerability to global energy market disruptions. While only a limited share of Europe’s direct oil and LNG imports pass through the region, the Strait remains one of the world’s most important energy chokepoints, heavily influencing international oil and gas prices. The article highlights how geopolitical tensions continue to drive sharp price volatility across energy markets, affecting industrial competitiveness and economic stability across Europe.
• A second key focus is the growing connection between energy market instability and the EU carbon market. Rising gas prices and shifts in the European energy mix (including increased coal generation) have created renewed pressure on the EU Emissions Trading System (EU ETS). The analysis explores how policymakers and market participants are responding to these developments, including debates around reforms to the Market Stability Reserve (MSR), the future of free allowances, and proposals aimed at limiting excessive carbon price volatility.
• Finally, the article outlines the widening political divide within the European Union over the future direction of climate policy and carbon pricing. While several Central and Eastern European countries are calling for greater flexibility and intervention within the ETS framework, other member states continue to defend the system as a critical pillar of Europe’s decarbonisation strategy. Against this backdrop, the market remains cautious, balancing geopolitical risks, regulatory uncertainty, and the long-term transition toward a more resilient energy system.

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