J.P. Morgan has adopted a cautious outlook on European utilities, citing rising carbon price volatility and potential EU Emissions Trading System (ETS) reforms as near-term risks. The brokerage highlighted a 23% drop in EU carbon futures from January 2026 peaks, driven by speculation over possible reductions to the ETS Linear Reduction Factor (LRF), which could accelerate emissions cuts beyond 2034.

German MEP Peter Liese suggested the LRF might fall to 3.4% from 4.4%, though no official proposal exists yet. JPM noted power market restructuring faces legal hurdles, making carbon policy changes more actionable, such as increasing allowances or banning speculative traders. Meanwhile, power demand growth remains sluggish at 1% annually through 2027, compounded by rising LNG supply and backwardated European power curves.