On 2 April 2025, U.S. President Donald Trump declared “Liberation Day” and announced a fresh wave of tariffs on imports from multiple nations, including a 10% baseline tariff and steeper rates on strategic goods. This bold move has reverberated through global markets. Stock indices have plummeted, fears of a worldwide recession are mounting, and geopolitical tensions are escalating - marking a renewed era of tariff-driven uncertainty on a global scale.

These disruptions are now reaching deep into Europe’s energy and carbon markets, including the EU Emissions Trading System (EU ETS) - the cornerstone of the EU’s climate policy and a key mechanism for reducing greenhouse gas emissions.

What’s Behind the Drop in EU ETS Prices?

The recent fall in EUA (EU Allowance) prices is closely tied to wider macroeconomic strain. Several interrelated factors are contributing to the downturn:

• Rising Recession Risk: Slowing industrial output, weakened demand, and tighter monetary policies across major economies are fuelling concerns of a global recession. As industrial production contracts, emissions fall - reducing the demand for carbon allowances.
• Tariff Tensions and Trade Disruptions: The newly imposed U.S. tariffs are causing global trade bottlenecks and could increase the cost of essential raw materials and energy technologies. These added costs risk delaying or downscaling decarbonisation projects, complicating the EU’s climate transition.
• Energy Sector Volatility: With supply chains under pressure and commodity prices fluctuating, investor confidence is being shaken. Many speculative positions have been liquidated, heightening short-term volatility in the carbon market.

Together, these dynamics are putting downward pressure on EUA prices and fuelling a climate of uncertainty. However, within this volatility, opportunities are beginning to emerge.

A Market Dip, or a Strategic Entry Point?

While EUA prices have weakened of late, the long-term outlook for the EU ETS remains robust. Indeed, earlier this year saw a notable price rally from €65 to €84, largely driven by hedge funds and institutional investors positioning ahead of expected tightening in supply and stronger climate policy enforcement.

Economic slowdowns have historically triggered temporary drops in carbon prices - but they can also represent strategic entry points for market participants. With the EU’s commitment to net zero by 2050, the annual tightening of the emissions cap, and a projected allowance shortfall beginning in 2026, many analysts still forecast substantial price appreciation over the coming years.

Reliable Trading in Turbulent Times

AFS Energy stands at the forefront of EU ETS innovation, offering a newly developed electronic trading platform that provides direct market access without the traditional obstacles. Our strategy prioritises transparency, efficiency, and cost-effectiveness.

Unlike conventional carbon exchanges, our platform replicates exchange performance on a one-to-one basis - but without expensive membership fees or regulatory hurdles. This provides compliance entities and active traders with a quicker, simpler, and more affordable means of engaging in one of the world’s most critical climate markets.

Whether you’re hedging your emissions exposure or capitalising on market opportunities, AFS Energy enables you to act with precision and confidence - particularly in uncertain conditions. In volatile markets, trusted access can make all the difference.

The AFS Energy Trading Platform provides unparalleled access to carbon credit trading, market insights, and portfolio management solutions, ensuring businesses stay competitive in a rapidly evolving market.

As energy markets continue to evolve, digital trading platforms are essential for navigating challenges and seizing opportunities.

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