European carbon prices have soared in 2021, reaching heights not seen since the continent’s emissions trading system (ETS) was established in 2005 and signaling what could be a longer-term trend across a region looking to further tighten climate regulations.

Carbon prices hit a record by crossing the 50 euros per metric ton mark in early May. They have continued to trade around 50 euros since in what’s proved to be a boon for natural gas demand, along with other market fundamentals that have combined to support prices for the fuel in Europe. 

The European Union’s (EU) carbon market has a direct impact on natural gas demand in member countries. Because natural gas has a lower emissions profile than coal, higher carbon prices incentivize the burning of gas for power, which...