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EUAs Send Bullish Signals, PA Joins RGGI, and Supreme Court EPA Ruling Update

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Compliance Market


While the ongoing reform process to tighten the EU-ETS, known as Fit for 55, continues to send bullish signals, the geopolitical and energy crisis have created headwinds for the market. The European Council, Parliament, and Commission are set to begin their “trialogue” negotiations to find a compromise set of reforms this month. This process will last through the summer and likely well into the autumn.

EUAs fell back as traders trimmed positions amid a surge in natural gas prices. The leading December 2022 futures contract settled earlier in the week at €83.19, a drop of 4.8% from a week earlier.

As gas prices rise, industrials could be forced to reduce operations if they cannot pass through the full cost of energy to their consumers. The negative correlation between carbon and gas prices appeared to be triggered on Friday when gas prices rose above €140/MWh.


UK carbon prices remain at a premium to their EU counterparts and have generally resisted the bearish trend in recent days. The benchmark December 2022 futures contract settled at £84.80 on Tuesday, a week-on-week gain of 2.4%, compared to European carbon’s drop of 4.8%.

Much of the resilience in UK carbon is derived from a tighter market supply: there is no historical glut of allowances in the UK market since it launched in May 2021, and the cap has been set at a relatively low level.

In addition, there is strong underlying demand from utilities looking to hedge power sales made for between two and three years ahead. These hedges represent demand for UKAs that will be issued in later years but need to be on power generators’ books now.


California allowance prices ended Tuesday at $31.00/tonne, a week-on-week gain of 5.2%, with some traders attributing the gains to funds looking to lock in a better performance for the quarter.


Pennsylvania became the 12th RGGI state as of July.  In Virginia, Governor Glenn Youngkin continues his attempts to remove the state from the program and is expected to develop regulations in the third quarter.

US Supreme Court EPA Ruling

The US Supreme Court ruled last week that the Environmental Protection Agency did not have the authority to regulate CO2 from power plants. The decision is a blow to EPA’s ability to regulate climate pollutants, but there is no impact on the California or RGGI markets as these programs are regulated by state law.

The Clean Air Act itself is safe, being a piece of legislature passed by congress. EPA has in the past, provided waivers to California to set higher emission standards under the Clean Air Act and whether past waivers can be revoked is quite unlikely. There were several cases filed by the Trump administration in their tenure trying to act against some of the waivers, which were dismissed by the Court. They also challenged California’s authority to establish a linkage with Quebec which was again dismissed by the court in 2021. Whether there will be interest to appeal on those older waivers is unknown, however, the case would be weak.

The state of California says it will fight Supreme Court’s limits on EPA climate enforcement and that it’s not likely to unravel California’s ambitious climate goals to eliminate, sequester or offset any and all carbon emissions to achieve net-zero emissions by 2045. Instead, it reemphasizes the importance of strong state policy.

“Any time federal power to regulate climate change is constrained, state power gets more important. California has always been a leader in the fight against climate change, and I expect that will continue and become even more crucial. States have a lot of regulatory power that this Supreme Court’s ruling does not touch.” Cara Horowitz, co-executive director of the Emmett Institute on Climate Change and the Environment at UCLA School of Law.

Voluntary Market

CBL and CME have announced new “trailing” futures contracts that will include older vintage offsets that are no longer eligible for delivery into the main C-GEO and N-GEO contracts. Effective July 1, the main N-GEO contract expanded to include offsets from 2016-2022 and in July 2023 it will shift to 2018-2023, rolling forward by one year each subsequent year. 

The World Bank is to launch a metadata project to provide the needed infrastructure for the Voluntary Carbon Market (VCM). The goal is to enable transparent accounting by hosting registry data from linked decentralized registries, independent standard registries, and country registries.