European carbon prices briefly touched €70.00 at the start of this week, spurred higher by a strong rally in front-month TTF prices, Europe's natural gas benchmark. While the rally has so far failed to stick, there are signs that the market could be poised for sustained strength.

The influential weekly Commitment of Traders data for the week ending Nov 15 was published early on Wednesday and showed that investment funds had, for the first time in 16 months, built a net long position of 1.5 million EUAs. This comes after funds had built up net short positions of as much as 40 million EUAs in February this year, as speculators eyed steep falls in thermal power generation and poor industrial production prospects for the year.

However, with the natural gas market now beginning to show signs of nerves ahead of the peak winter demand season, prices for front-month TTF are climbing, and this has implications for Europe’s power sector in the coming months. At around €46-€47/MWh, gas is at its highest levels of the year to date, and Wednesday’s COT data also showed speculative investors holding their largest-ever net long position in the fuel.

Meanwhile, API2 coal futures for calendar 2025 are not quite at their year-to-date highs, but the combined impact of gas, coal, carbon, and power prices means that coal is considerably more profitable than gas for power generation. As gas prices continue to rise faster than coal, more utilities will turn to coal-fired generation, boosting demand for EUAs over the peak demand season.

Gas traders have good reason to be nervous. European stockpiles of the fuel are currently around 90% full, compared to the same time last year when they were more than 98% filled. Colder weather than last year has meant commercial, residential and utility buyers have started to draw on stocks even as the region continues to bring in cargoes of LNG to replenish its inventories.

COP29 Talks Wrap Up

UN climate negotiators in Baku are striving to reach agreements on the remaining key building blocks of two global carbon markets that will underpin countries’ efforts to reach net zero by the middle of this century.

The first, a government-to-government trading system referred to as “Article 6.2” (referring to the relevant clause in the Paris Agreement), has already started working, but experts from more than 190 countries are struggling to agree on key technical aspects of the infrastructure that will support this system.

Nations are also negotiating instructions for the administrator of the Paris Agreement Crediting Mechanism, a global market system that will approve and issue tradable carbon credits that can be used either by corporates for their voluntary commitments or by countries to set against their self-determined emissions targets.

While this year’s COP conference kicked off with a key decision that sets investments and project development into action, technical and legal questions are again being hammered out in negotiating rooms. These questions need to be agreed upon in order to give the Supervisory Body instructions on how to build out the market’s architecture and procedures.

Despite these technical discussions, the mood among market-connected observers is buoyant. The early decision to approve standards that will guide carbon reduction-counting methodologies and enable carbon removals to earn credits is seen as firing the starting pistol, resulting in the Paris Agreement’s first official credits being issued next year.

Carbon Market Roundup

The weighted global price of carbon is $49.57, up 1.5% for the week. EUAs are up 1.7% from the week prior at €69.13. UKAs fell 2.1% at £37.37. CCAs are down 3.8% at $33.19. The next step in the reform process, the ISOR report, could be delayed to next year. The market will be looking to the results from this week's CCA auction for direction, which will be released next Wednesday. RGGI prices rallied 10.5% to $25.27. The market reacted to news around a county court in Virginia ruling that Republican Gov. Glenn Youngkin acted unlawfully by withdrawing the state from RGGI. RGA futures have seen heavy volume, a high of $27 yesterday, before closing lower as the market digests this latest news and the program reform uncertainty.