European carbon prices dipped last week after the expiry of the June options contract released the market from its narrow trading channel around €72.50–€73.00/tonne. The expiry of the June TTF natural gas options contract also contributed to the downturn, triggering a sell-off that pulled EUA prices lower.

The wider energy market relaxed after the Israel–Iran conflict appeared to be cooling earlier in the week, which briefly boosted carbon prices ahead of the options expiry. December 2025 EUA futures climbed to a high of €74.57/tonne early on Tuesday after a ceasefire was agreed, while natural gas and crude oil prices plunged as risks to energy shipping receded.

With the June EUA options expiring just after midday on Wednesday, the market appeared set to close between €72.50 and €73.00, straddling the two June call strikes with the most open interest. However, selling pressure ramped up from early Wednesday, bringing the market down to around €71.80 at the time of the options settlement. Once released from the grip of options hedging, EUAs extended their decline until the market found support just above €70.00—a level widely seen as psychologically important for traders.

An attempted rally on Thursday was beaten back as the front-month TTF natural gas market continued to sell off, this time around the expiry of its own June options contract. As of late Friday, the TTF market had dropped by more than 18% from a week earlier, while EUAs were down just 3%.

There is some optimism that the EUA market may find buying support around the €70.00 mark. Macquarie Bank issued an updated recommendation for EUAs this week, forecasting an average price of €75/tonne this year and €95/tonne in 2026—a 5% increase from previous expectations. The analysts cited tightening supply next year, with auction volumes estimated at 475 million EUAs (down 115 million from 2025) and free allocation at 447 million tonnes (a 104-million-tonne year-on-year decrease). Against this aggregate drop of 219 million EUAs, the bank forecasts demand to fall by just 32 million tonnes in 2026, led by the power sector (-52 million tonnes) and industry (-4 million tonnes). Demand from the maritime and aviation sectors is expected to rise by a combined 27 million tonnes. The Macquarie price forecast echoes more bullish expectations for 2026 voiced by other analysts, with some suggesting EUA prices could climb back to €80 or higher before the end of 2025.

With the annual compliance season about to begin in Europe, spot activity in EUAs has picked up, likely to spill over into the futures market as well. Data from the ICE Endex exchange also shows that aggregate year-to-date trading volume in the benchmark December contract is the highest it has ever been. This reflects a considerable jump in speculative and algorithmic trading, according to sources, but may also suggest that investors are positioning themselves early for the widely anticipated upswing in EUA prices. Analysts have highlighted the likelihood of early accumulation of length, even before tighter supply begins to impact the market.

With the REPowerEU sales program expected to end in August 2026, auction volumes are likely to be effectively reduced “twice”: once to reflect the change in the total number of allowances in circulation (TNAC) for 2025 (the annual calculation of total EUA supply), and again to reflect the end of REPowerEU volumes. However, the REPowerEU program is falling behind its €20 billion revenue target. This raises the possibility that the EU might extend REPowerEU sales for several months to recover any shortfall.

Carbon Market Roundup

The weighted global price of carbon was $50.23, down 0.76% from the week prior. EUAs were down 2.75% at €70.96. UKAs were up 3.04% to close the week at £48.12. CCAs were up 0.86% at $28.08. RGGI was down 3.68% to end at $22.80. WCAs were nearly unchanged, down just 0.02% at $61.74.