In an interview with Bloomberg, Michele Della Vigna, Goldman Sachs (NYSE: GS) head of natural resources research for Europe, the Middle East, and Africa has said that the European carbon market is poised for a significant price shift and will attract investor interest.

Della Vigna notes a break from the historical link between lower gas prices and lower carbon prices which he says has been driven by changing dynamics in the world’s largest carbon market accompanied by shrinking emissions caps.

He says industries have replaced power producers as the primary buyers of pollution permits and are purchasing carbon allowances in anticipation of rising prices. He expects prices to continue to increase as cheaper gas enables the resurgence of European heavy industry resulting in higher emissions and a tighter carbon market by 2026.

The European Union’s (EU) response to Russia’s invasion of Ukraine led to a surge in renewable energy production and significant investment in liquefied natural gas (LNG) infrastructure. Goldman Sachs predicts global LNG supplies will rise by 50% in the next five years, reducing gas prices by half.

Della Vigna suggests that even with higher carbon prices, energy inflation in Europe will be mitigated, benefiting both consumers and the industry.

Goldman Sachs forecasts carbon allowance prices on the EU Emissions Trading System (ETS) could reach €130 ($142) per ton by 2028, up from the current average of €66 per ton.

Analysts at BloombergNEF predict that prices could approach €150 by 2030, driven by increasing compliance obligations and a tightening market.

The EU aims to achieve net-zero emissions by mid-century, gradually reducing ETS allowances to force sectors to decarbonise.

Since the ETS began in 2005, emissions from covered companies have dropped by 41%, contributing to a 28% overall decline in EU emissions.

Future decarbonisation will require higher carbon prices, ranging from €100 to €130 per ton, to incentivise industrial decarbonisation and make large-scale carbon capture and storage (CCS) profitable, Della Vigna says.