European carbon prices have extended their January rally into a third week and are now more than 11% higher than they were at the end of 2024.

The December 2025 futures contract hit a new one-year high of €81.76 on ICE Endex on Thursday, capping a rally that has seen prices leap by €19/tonne in just under six weeks.

The rally has been driven chiefly by investor buying. Weekly Commitment of Traders data showed that in the week ending January 17, investment funds had amassed a total long position of more than 79 million EUAs, the largest long holdings in more than three years.

At the same time, funds cut their short positions to 37 million EUAs, the lowest since September 2023. This generated a net length of 42 million allowances, the largest bullish bet in more than two years.

Carbon’s price recovery has also mirrored renewed strength in natural gas prices. February TTF futures, the reference benchmark for European natural gas, have risen nearly 30% since the middle of December as European traders continue to worry about long-term supplies and react to substantial reductions in the region’s reserves in recent weeks.

The strong correlation between gas and carbon prices remains in place despite occasional variations. The 60-day rolling correlation between front-month and December EUAs has held above +0.50 for the last three months.

Analysts at Macquarie Bank predict EUAs will average €78/tonne in 2025, rising to €90/tonne in 2026 and €105/tonne the year after. “Fundamentals are becoming more supportive after two years of rapid emission declines and weak balances,” the analysts wrote in a report this month. They suggested that EUA prices would disconnect from TTF gas prices as the global balance in LNG improves in the coming years.

While EUAs have been setting one-year highs, the UK ETS has been declining to historic lows. The December 2025 UKA price dropped to a record £31.10 on January 20 as investment funds continued to reduce their length and short positions grew. Prices have since bounced back into the £33.00 range as wind generation has declined.

UKA traders have been frustrated by a seeming lack of ambition among UK regulators to update the British market after its first three years generated a cumulative surplus of nearly 50 million allowances. The previous government issued a consultation on wide-ranging market reforms in late 2023 but has not yet responded to the public responses with any proposed regulatory changes.

Instead, the new Labour government has issued further consultations on additional changes to the market, which have included postponing the start of the next phase of the market from 2026 to 2027 in order to synchronize reforms with the scheduled start of the UK Carbon Border Adjustment Mechanism.

The weakness in UKA prices has also been driven by stronger wind generation, which cuts the demand for gas-fired power generation. With no coal-fired generation in the UK after last year’s closure of the last plant, there is no fuel-switching capacity, and so gas generation is at the mercy of renewable output.

Carbon Market Roundup

The weighted global price of carbon was up 1.9% for the week at $54.60. EUAs were up 3.1% at €80.76, while UKAs moved 3.4% higher to £33.69. CCAs fell 4.1% to $31.21. RGGI ended the week relatively flat, down 0.2% at $22.70. WCA fell a slight 1.0% to $54.13.