Overview

Over the last week, the carbon market week transitioned from uncertainty to renewed confidence, driven by policy signals around the Market Stability Reserve (MSR). While the second half of last week was characterised by choppy and indecisive trading, clarity on MSR reforms this week has restored confidence.

Last week, prices showed mixed direction. Despite generally supportive auction dynamics, sentiment remained fragile. The Commitment of Traders report showed that investment funds had cut their net length for a ninth successive week, reinforcing a more cautious tone.

A strong auction result on Monday, lifted prices back into the high €73s. Momentum faded on Tuesday, but once the Commission reported yesterday, proposing halting the invalidation of allowances above the 400 Mt threshold, prices rose to their highest levels since mid-February. The general sentiment is that the MSR change will not have a large impact on market supply, meaning that the largely bullish narrative that drove the market in H2 2025 is essentially intact.