Overview

European carbon allowances posted their first weekly decline in a month last week as macro-driven selling, milder weather forecasts, and renewed speculation about peace efforts in the Russia-Ukraine conflict pressured the market. The week did not begin auspiciously as news of a leaked report suggested that emissions intensity factors for certain industries would be cut from next year, potentially increasing the supply of EUAs in the market. This news wiped 1.3% off the December 26 futures contract by Monday’s close, but the resilience of carbon (so much a factor of the past 6 months) saw these losses wiped out during Tuesday as the market rejected the bearish interpretation of the news. The rest of the week, however, saw EUAs test the €80 support level as bearishness from the natural gas and power markets and a selling trend in global equities prompted sellers to leave their mark on prices. That the EUA market now views €80 as a support line is interesting: at the start of October we said the same thing about €75 and carbon has certainly begun to coalesce around the view that 2026 will see stronger levels.