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Investing in carbon before policy reforms
5/28/2026
How reforms to the EU Emissions Trading System create attractive investment opportunities
Murray Birt
Senior ESG Strategist
IN A NUTSHELL
- This report sets out why a 2-4+ year investment in EU carbon allowances (EUAs) is attractive for buy-and-hold investors.
- The decline in the ETS price this year is a ‘buy low’ opportunity.
- Investor certainty in the continued operation of the ETS has been restored.
- DWS statistical analysis found that historically, the largest return came from buying EUAs before major ETS policy reforms were proposed and agreed.
- The EU Commission will publish proposals in July 2026 for the post-2030 ETS rules.
Introduction
EUAs are a unique commodity that regulates EU power and industrial companies’ emissions. Section 1 of this report covers factors affecting the return from investing in carbon a. Section 2 explains how the Emissions Trading System (ETS) works.
The goal of the ETS is to stop it being free for companies to pollute as much as they want. In most markets, if the price of a product or service goes up, then companies will try to produce or supply more of that product or service. The ETS is a ‘cap and trade’ system where the supply of EU allowances (EUAs) declines every year to help meet climate goals. This makes the EUA a unique commodity market as the supply of EUAs cannot increase if the price of allowances goes up.
Weakening the ETS would not be in Europe’s economic interest. In the wake of the Gulf conflict and energy crisis, we believe the EU will focus on strengthening the ETS in ways that support sustainable energy independence and electrification technologies like heat pumps, while protecting industrial competitiveness. There is a case for investors become involved in the ETS reform debate, reflecting the expectation of major asset owners to participate in policy engagement[1].
No assurance can be given that any forecast, target, or opinion will materialize. Forecasts are based on assumptions, estimates, views and or analyses, which might prove inaccurate or incorrect.