EU carbon prices edge closer to Eur89/mt amid bullish sentiment

EU carbon prices held mostly steady in the week ending Jan. 9 as demand remained sturdy despite mixed signals from early auctions.

EU Allowances were trading at Eur88.94/mtCO2e ($103.41/mtCO2e) at 1236 GMT on Jan. 9, according to Intercontinental Exchange data, up 0.71% from Jan. 2. Platts, part of S&P Global Energy, assessed the nearest December EUA price at Eur88.25/mtCO2e on Jan. 8.

EUAs fell midweek on lower European gas prices, but with colder weather forecast in the days ahead, traders expect industrial interest to remain strong.

Bullish fundamentals

EUAs will remain sensitive to weather patterns and power sector dynamics in the short term, according to traders and analysts, as periods of low wind generation or cold snaps drive increased demand for fossil fuel generation, supporting demand for carbon allowances.

"Cold weather and the notable drop-off in auction volumes in 2026 should maintain pressure in the short-term," a Europe-based analyst said, adding that these should be "slightly bullish" signals that maintain the price above Eur88.

The most recent ICE Commitment of Traders report showed that investment funds' net long positions fell marginally for a second consecutive week to 115 million EUAs as of the week ended Jan. 2. The position declined by 1.2 million allowances as of Dec. 24.

The drop was not "too significant," the analyst said. "[This is] most likely some profit-taking over the Christmas period, resulting in closed positions."

A second Europe-based analyst said net length was likely to ease after the first quarter.

Most analysts expect this bullish momentum to continue into the month, supported by structural supply tightness and record financial positioning.

Analysts at S&P Global Energy Horizons expect EUAs to average Eur85/mtCO2e in the first quarter and Eur86/mtCO2e in the second.

"Prices are expected to remain elevated as the market anticipates the 2026 emissions cap reduction and declining free allocations," they said in a recent note.

Auction supply will be reduced in 2026, with the most recent calendar showing a reduction of 52 million allowances. This reflects canceled allocations accounting for the maritime sector's 2025 surrendered emission permits.

UKA-EUA narrows sharply

UK Allowances held steady just below GBP70/mtCO2e, with prices supported by lingering momentum from December's rally, which was fueled by expectations of progress in linkage with the EU emissions trading system market.

The spread between the two hubs narrowed sharply in recent weeks and was just below Eur10/mtCO2e on Jan. 8, making it the tightest spread since late May.

UKAs surged after the UK and the EU agreed on Dec. 16 to conclude negotiations on linking emissions trading schemes before a summit scheduled for spring 2026.

UK Allowances were trading at GBP68.73/mtCO2e ($92.09/mtCO2e) at 1237 GMT on Jan. 9, ICE data showed. Platts assessed the nearest December UKA price at GBP68.52/mtCO2e on Jan. 8.