Morgan Stanley | Rob Pulleyn (analyst) believes that concerns about drastic changes to the EU ETS and carbon policy are overblown. He does not expect the ETS to be cancelled, suspended or materially watered down, despite market concerns ahead of the Council of Ministers meeting on 19–20 March and the review of Phase V of the ETS in July. He anticipates modest reforms, likely focused on slowing down the CBAM and adjustments to the MSR, without any significant reform of the carbon market or the electricity market. However, it now considers a scenario of substantially higher carbon prices unlikely. It reduces its US price forecast to €80/t for 2026, lower in 2027/2028, before rebounds in 2029/2030. With expectations of limited changes, it believes the Council of Ministers meeting could act as a catalyst for a clean-up. A continued role for carbon in electricity pricing would likely benefit energy-price-sensitive below-margin generation (Fortum, Verbund, CEZ, Acciona Energia) and renewable growth stories (RWE —Top Pick—, EDPR, Voltalia, Acciona Energia, Solaria, ERG).
Ongoing role for carbon in electricity pricing would benefit renewables such as Acciona Energía and Solaria
