["Journal of Money, Credit and Banking, EarlyView. ", "\nAbstract\nThe European Union Emissions Trading System (EU ETS) experienced sharp allowance price increases from 2018 onward, prompting claims that rational bubbles were driving the surge. We reassess this hypothesis using expectations based on futures prices. We modify an existing testing approach under risk‐neutrality and show that this version of the test is valid in the presence of a dynamic risk premium and robust when the underlying fundamental exhibits a unit root or mildly explosive behavior. Using weekly spot and futures data from 2013 to 2023, we find no evidence of rational bubbles. The evidence is consistent with shifting allowance‐scarcity expectations."]