EU carbon pricing must stay affordable or system fails, says Vitol CEO

Europe's carbon pricing framework is under mounting pressure to balance decarbonization ambitions with energy affordability, as geopolitical shocks to gas supply and rising consumer costs test the political durability of the EU Emissions Trading System, Russell Hardy, CEO of Global commodity trader Vitol, said Oct. 14.

Speaking at the Carbon Forward conference in London, Hardy warned that carbon policy must be kept deliberately contained against a backdrop of war and high energy prices, or risk fracturing under pressure from competing political forces.

"Carbon policy needs to keep carbon pricing relatively in check because there's too much danger from different political factions that ultimately, the system will break if it becomes unaffordable," Hardy said. "We do need to keep in balance so that energy can remain affordable to the consumer, at the same time, we can drive some behavioral change."

He said the EU ETS remains the cornerstone of European climate policy but warned that policy stability is the single most important factor underpinning investment in low-carbon technologies, while carbon prices must stay within a range that households and industry can absorb or risk a political backlash that could unravel the system entirely.

"Ultimately, stability of policy is critical because everything is government policy-driven here. It's not always a natural marketplace. It's a marketplace that's been created," Hardy said. "We'd all like stability of government policy, but I'm not sure that that's necessarily going to come anytime soon."

Gas vulnerability

Those pressures are being sharpened by a deteriorating gas supply picture heading into winter, according to Hardy.

Supply disruptions stemming from the conflict in the Middle East have compounded the structural loss of Russian pipeline gas following the Nord Stream sabotage in 2022, tightening the market at a particularly sensitive moment.

"The supply and demand have changed on top of the Russian change from 2022," Hardy said, warning that Europe's regas buildout, while helpful, cannot fully insulate the continent from weather-driven demand spikes.

Temperature, Hardy said, will be the decisive variable this season. On a cold day in the UK, approximately 50% of gas consumption flows into domestic boilers, leaving European consumers acutely exposed to a sustained cold spell.

"The gas market can cope provided the weather trends towards the warmer end of the spectrum," Hardy said. "And if it trends towards the colder end of the spectrum, there will inevitably be further price rises and difficulties with supplies."

European gas prices have surged in recent weeks amid threats to, and actual attacks on, shipping in the Middle East.

Reduced LNG exports from the Persian Gulf have tightened European supply and lifted purchase prices, while growing buying activity from Asia and low storage levels in some European countries have added further upward pressure.

Platts, part of S&P Global Energy, assessed the month-ahead Dutch TTF gas price at €87.50/megawatt-hour Oct. 12, the highest since December 2022.

"Europe, as a developed continent, can afford to pay. I mean, it doesn't feel like we can afford to pay. But in the end, we can afford to pay," he said. "And Bangladesh and other places will suffer the consequences of us buying gas at prices that they can't afford."

The gas supply picture has direct implications for carbon policy, according to Hardy.

With fossil fuels still accounting for 68% of EU primary energy consumption, down from 78% in 2005, Hardy said the scale of what has already been achieved is frequently underestimated, but so is the distance still to travel.

A cold winter that drives up gas consumption risks pushing carbon costs higher at the same time, putting pressure on households and industry from both directions.

"People have to remember how significant the change is and how long transition is going to take," he said.

Policy balance

Against that backdrop, Hardy said EU carbon prices are currently operating within a workable range, but that maintaining it requires active management.

"I think we're in a sweet spot at the moment that is ultimately driving behavior, which is what it's there for," he said. "But at the same time, it's still in balance with the costs that consumers, domestic consumers, and industry have to bear, which clearly is at the limit of being acceptable and competitive."

EU Allowance prices have been volatile this year, ranging from around €60/mt to €90/mt, amid political pressure on the carbon market and higher energy prices driven by the Middle East conflict. Platts assessed EU Allowances for December 2026 at €87.94/mt CO2 equivalent Oct. 13.

Hardy pointed to the structural challenge facing EU policymakers: emissions markets have a historical tendency to collapse toward zero or spiral toward infinity, and the EU's backloading tools and market stability mechanisms exist precisely to prevent either extreme. He said mechanisms such as Article 6 of the Paris Agreement serve a dual purpose, providing a pricing relief valve while also creating a bridge to international carbon markets beyond Europe's borders.

The stakes extend well beyond Europe. The continent accounts for just 6.5% of global emissions, and Hardy argued that reducing that share in isolation would be insufficient without drawing other major emitters into credible frameworks. "If we go from 6.5% to 3%, that's great. But there's a whole community out there that we need to bring with us," he said.

He also offered a pointed critique of the EU's Carbon Border Adjustment Mechanism, describing its rollout as poorly timed relative to industrial offshoring. "The CBAM has now arrived to rescue industry after industry left," Hardy said, calling the overall policy landscape "a bit disjointed."

The European Commission moved to address industrial competitiveness concerns in a July 17 legislative package that slowed the pace of emissions cuts required beyond 2030, added €6 billion in free allowances for manufacturers, established a €100 billion Industrial Decarbonisation Bank, and introduced controlled access to carbon removals and international credits. The reforms reflect sustained political pressure from member states and industry groups who argue the current framework risks accelerating the offshoring of carbon-intensive production rather than cutting global emissions.

The package has drawn mixed reactions. Environmental groups have warned that slowing the linear reduction factor beyond 2030 risks undermining the long-term credibility of the cap-and-trade system, while industry bodies have broadly welcomed the free allowance extension as a necessary bridge during a period of elevated energy costs and weak European industrial output.