European and UK carbon allowance prices ended largely unchanged week over week to May 30 as markets traded within a narrow range, searching for direction.

EU Allowances were trading at Eur71.39/mtCO2e ($80.89/mtCO2e) at 1031 BST, Intercontinental Exchange data showed. This was down 0.23% compared to the May 23 settlement.

"[The EUA price] seems to be trapped in a wedge at the moment. There needs to be something that will bring it out from this wedge that we're currently in," Ingvild Sorhus, manager of EU carbon analysis at Veyt, told Platts.

Platts, part of S&P Global Commodity Insights, assessed prices for EUAs in the low-to-mid-Eur70s since May 7.

Sorhus added that there is a prevailing market uncertainty regarding the potential direction of prices. She noted that participants are in a "wait-and-see" mode.

The European Commission published the Total Number of Allowances in Circulation within the EU emissions trading system on May 28. The release has had a limited price impact.

The EC said it will withhold 275.53 million mt emission allowances from auctions between September 2025 and August 2026 as part of the Market Stability Reserve's role to address oversupply.

"Next year is tighter than most expected, albeit not by much," a carbon trader said.

"For me, the impact was close to zero," said another trader, adding that compliance buyers had been active on the day-ahead spread to December 2026 after the announcement.

"They follow the TNAC announcement due to their exposure, but they were planning a move these days even before the TNAC was out."

Tariffs, reduced auction

European allowances have reacted to price signals from the broader energy market amid ongoing tariff negotiations between the EU and the US on imposing up to 50% tariffs on the bloc. US President Donald Trump extended the tariff deadline to July 9 as negotiations continue.

"Carbon is searching for direction," Sorhus said. "We're still looking for something that will bring carbon out – looking for direction from gas or macros."

Prices fell during May 29 trading as a selloff was triggered by news that the White House would appeal a US Court of International Trade ruling, which had said Trump did not have the authority to use emergency economic powers to impose tariffs.

"Tariffs are, of course, adding nervousness to the market. Before Trump took office, there had been a bullish momentum. The market was a bit surprised by how strong the tariff impact was," Sorhus added.

The European Energy Exchange operated a reduced auction schedule, with only two auctions between May 26 and May 30.

"This week has just been a bit quiet. Auctions were bearish for Tuesday, then the auction cleared poorly with low coverage and prices much lower than the secondary market," said Sorhus.

The EU sold 3.2 million EUAs at Eur71.51/mtCO2e on May 27. The cover ratio for the auction was 1.39, much lower compared to the year-to-date average of 1.75. This showed limited interest from market participants.

The outlook for EUAs, however, remains bullish, with fewer allowances in circulation from 2026 and hedging demand expected from mandated entities.

"We maintain the view that short-term demand weakness in the shoulder season should keep prices in this range for the remainder of Q2, before hedging demand begins to pick up in the run-up to the September surrender date," analysts at BNP Paribas said in a market note.

"We continue to see upside risks in Q4 on winter risks affecting gas prices, with a strong gas-carbon correlation supporting EUAs and anticipatory hedging demand ahead of tight 2026 fundamentals."

UKA spread to EUAs narrows

Platts assessed UK carbon allowance prices above GBP50/mtCO2e throughout the week to May 30. UKAs held onto earlier gains resulting from the announcement that the UK and the EU would work toward linking their respective emissions trading systems.

UK Allowances were trading at GBP51.50/mtCO2e ($69.40/mtCO2e) at 1031 BST, up about 6.49% from before the linkage statements, according to ICE data.

"UKAs will depend a bit on what EUAs are doing. The spread narrowed, I think we will see a constant price spread between the two," said Sorhus.

"Now the market is waiting to see what the next steps are, what the timeline is. There are different views on when it can take place. There is quite a lot of uncertainty that keeps the spread as is at the moment," she added.

A priority in the linkage negotiations will be creating mutual exemptions from the UK's and the EU's respective carbon border adjustment mechanisms. Both parties agreed that the link "should create the conditions for goods originating in our jurisdictions to benefit from mutual exemptions [from CBAM]."

"I'm not expecting the link to start before the CBAM definitive period. It takes lots of time," said Victor Perez Prieto, cofounder and CEO at Carbon Glance, a climate analytics company focused on CBAM.

He cited several regulatory issues and points that need to be addressed surrounding infrastructure. The UK lacks a market stability reserve mechanism, which the EU does implement, and questions remain surrounding the issue of free allocation.

"[The agreement] was more of a political signal that the UK is willing to collaborate with the EU," Perez added.

Platts assessed the UKA contract for the nearest December 2025 delivery at GBP51.73/mtCO2e ($69.69/mtCO2e) on May 29.