Energy rally pushes EU carbon higher as clean dark spread turns positive

European carbon prices rose alongside the energy complex March 3, cautiously tracking the Dutch TTF, which posted a second consecutive day of gains amid LNG supply concerns due to the war in the Middle East.

EU Allowances were trading at Eur74.20/mtCO2e ($98.57/mtCO2e) at 1131 GMT, according to the Intercontinental Exchange, up 5.1% from the previous day's settlement.

"Carbon is holding up relatively well despite the grim macroeconomic reality, supported by favorable coal economics," said Riham Wahba, senior market analyst at Vertis Environmental Finance.

Clean dark spreads strengthened in the German market, with margins for 45% efficiency units turning lucrative at Eur2.50/MWh for the third quarter and Eur1.84/MWh for April dispatch, according to Platts calculations on March 2. In contrast, margins were significantly negative during the same period a year earlier.

Analysts at S&P Global Energy CERA have projected German coal generation to average 1.7 GW in April, according to a Feb. 26 report, compared with 3.1 GW in April 2025.

Dutch TTF front-month gas prices were trading at Eur65.50/MWh at 1119 GMT, according to ICE, up 47.4% day over day and more than double from the Feb. 27 market close. Meanwhile, the API2 Rotterdam front-month was up 17% day over day by 12:06 GMT, at $139.05/metric ton.

"Gas was more favorable recently," said a UK-based carbon trader. "But now coal is better, and today coal is rising rapidly as well. More coal usage means [increased] EUA needs. We will see if gas will keep outpacing coal on the upside."

Coal accounted for less than 10% of power generation across Europe in 2025, amid a shift toward renewable energy. Fuel-switching economics could still affect EUA prices due to expectations of higher emissions, which would increase permit demand.

During the March 2 trading session, EUAs shrugged off the bullish gas gains, instead responding to stock market weakness as equity prices fell.

"With [gas] storage levels critically low, the spread signal is unambiguous; coal dispatch is stepping in to fill the gap," said Wahba. "This structural backdrop remains supportive for EUAs, with utilities visibly buying the dip and layering in forward hedges, even as we believe financial players are reducing length or actively building short exposure."

Carbon and gas prices started to decouple in the second half of 2025 as the power mix became less influential on EUA prices, with financial market participants assuming a larger share of the market amid long-term bullish expectations.

However, shifts in political sentiment over the previous week have led to significant price declines, with EUAs losing Eur20/mtCO2e in February compared with their January highs as investors began unwinding positions.

The Feb. 25 Commitment of Traders Report published by ICE showed that investment funds had reduced net long exposure to 68.8 million allowances, the lowest level since early September 2025, following calls from several European leaders to reform the EU Emissions Trading System.

The data showed that commercial undertakings had reduced exposure by 3.5% to 212.3 million allowances, while operators with obligations held 52.9 million allowances, a 6.2% weekly reduction in their net exposure.