Carbon prices in the European Union (EU) could climb this winter as an energy shock linked to the Iran war raises natural gas costs and encourages power generators to burn more coal, according to Bank of America Global Research, as cited by India’s ChiniMandi.

The bank expects EU allowances (EUAs), the official carbon credit used under the EU Emissions Trading System (EU ETS), to trade as high as €100 a metric tonne, equivalent to about $112. The forecast reflects a shift in fuel economics: coal has become cheaper than natural gas for European generators even after carbon costs are included.

Oil prices have risen about 40% since late February, while European natural gas prices have more than doubled, the report said. However, years of reductions in the EU’s coal-generation capacity could limit how far utilities can switch fuels.

The bank also pointed to EU policy changes that could increase demand for allowances. The Carbon Border Adjustment Mechanism (CBAM) extends carbon costs to certain imports, while the gradual phaseout of free allowances for domestic producers could add to demand in the emissions market.

BofA expects prices to moderate over the longer term as the conflict eases and additional liquefied natural gas (LNG) supplies become available. Under that scenario, EU carbon prices would fall below €80 a tonne in the second half of 2027, provided Middle Eastern exports return to normal and new LNG projects begin operating as planned.

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