European carbon prices fell back last week to a low of €71.73, a drop of as much as 6.5% from last Friday’s four-month high of €76.75, as mounting concerns over energy supplies amid the Israel-Iran conflict have diverted attention and resources to energy markets.

December 2025 EUAs had climbed 7% in two weeks as investment funds were seen accumulating a growing net long position – reaching 28 million EUAs when prices peaked last Friday – but the rally was cut short by Israel’s attack on Iranian military and nuclear facilities.

Since June 10, the day before the attack, front-month TTF natural gas has spiked by 22%, while EUAs have clung on to a 1% gain over the same period. Traders point to concerns over LNG supply from the region after Israel closed two large gas fields, while shippers are watching for any sign of Iran moving to restrict vessel access through the Strait of Hormuz.

It’s not just the conflict in the Middle East that’s hit carbon prices. With the clean dark spread (the operating margin for coal-fired plant) firmly ahead of the clean spark spread (gas-fired), European utilities are running as much coal as they can. This helps Europe to focus on refilling its gas storages for next winter.

And while the steady growth in renewables capacity continues in 2025, weather conditions have proved to be difficult for solar and wind. Data from the European grid operator show that renewables generation for the five months to May this year is down more than 13% from 2024 levels, and that shortfall has thrown more burden onto fossil fuels.

Hard coal output is up 8.5% this year; lignite generation is up 8%, and natural gas has increased by 25%. With numbers like that, one might expect more support for EUAs, but after a rally to around €85.00/tonne at the end of January, carbon prices have spent most of their time in the €70s/tonne range.

Much of the challenge for carbon comes from the industrial side, where output dropped back sharply in April after a positive March. Anecdotal evidence from carbon traders in the region describes modest demand, and a recent study revealed that while utilities are resuming historical hedging patterns, and airlines are beginning to lock in forward carbon pricing, industrials have yet to really focus on the period ahead when free allocations will shrink and the financial cost of EU ETS compliance will need to be addressed more completely.

Across the English Channel, the UK ETS has seen prices stabilize above £50/tonne for the last month, though the recent plunge in EUA prices has also fed through into the British market. UKA prices peaked at a nearly two-year high of £55.28 in late May, and briefly revisited £55.00 last week, but the market has been unable to resist the pull of weakening EUAs.

While the agreement to begin talks on linking the UK and EU markets was a strong boost for UKAs, traders warn that the political process may take as many as three or four years to complete, and that linking may only go into effect from 2030 or 2031, when the EU ETS Phase 5 starts.

That said, investment funds have been resolute and continue to hold a net long position of more than 18 million UKAs. This position has remained more or less unchanged for two months, and with the compliance cycle now over for another year, the coming summer is likely to offer a big test of funds’ resolve.

Carbon Market Roundup

The weighted global price of carbon was $50.64, down 1.4% from the week prior. EUAs were down 3.9% at €72.97. UKAs were down 6.5% to close the week at £51.00. CCAs were up 3.8% at $27.84. RGGI climbed 10.6% to end at $23.67. WCAs were up 1.2% at $61.75.