EUAs See More Clarity, Washington Releases Draft Rulemaking
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Recent Developments Bring More Clarity to EUA Market
Two key recent developments have brought greater clarity to the EUA market. The release of the updated auction calendar confirmed a substantial year-over-year reduction of around 130 Mt of EUAs to a total of 581Mt for next year’s auction supply, further supporting a constructive view on the 2026 price outlook. The schedule also suggests a lower risk of front-loading allowances into the earlier part of the year, at least for 2026. There are still some elements that are TBD, including the maritime sector allowance cancellations that will be determined next month and the Market Stability Reserve (MSR) adjustment that reduces oversupply based on the total number of allowances in circulation—a figure published next spring. Also, the other half of the expected EUA supply, i.e., free allocations, remains uncertain, with final figures not expected until early next year.
Additionally, the new US-EU trade agreement has ended months of uncertainty surrounding tariffs on European industrial exports. While emission-intensive sectors will still face a meaningful hit, the overall impact on emissions within the ETS from reduced export volumes is still relatively minimal, with an estimated 1.8% total decline in 2025 according to Macquarie. We cover further analysis on the trade impact in the coming weeks.
Washington State Cap and Invest Rulemaking Update
Last week, the Washington State Department of Ecology released draft amendments to its Cap-and-Invest program rules in preparation for potential linkage with California and Québec. Key changes include expanding eligibility participation in price ceiling unit sales to opt-in entities, removing vintage-specific holding limits post-linkage, prohibiting allowance transfers that mimic auction bidding to preserve market integrity, streamlining compliance obligation language, and introducing a unified “penalty obligation” definition to simplify enforcement. These updates aim to better align Washington’s system with the Western Climate Initiative (WCI) that California and Quebec operate in, while also enhancing regulatory clarity and supporting fair, transparent emissions trading.
Stay tuned for a public workshop scheduled for August 7 on further updates to the program rulemaking and market linkage.
Newsom Champions Cap and Invest in Recent News Release
Governor Newsom highlighted a new progress report from the California Air Resources Board (CARB) that highlighted the the investment benefits of the carbon cap and trade market and the importance of program extension. The news release explained how more than $600 million has gone to over 9,000 projects cleaning the air since 2017, with 85% of the funding reaching disadvantaged and low-income communities. Newsom commented: “We’re cutting harmful pollution across California with a special focus on communities that have some of the dirtiest air in our state. Thanks to Cap-and-Invest, we’ve invested hundreds of millions of dollars in projects that are proven to clean the air. In the face of a federal government hostile to clean air, we can’t let up now – that’s why we’re working to extend Cap-and-Invest this year.”
Carbon Market Roundup
The weighted global price of carbon was $49.97, down 1.1% week over week. EUAs closed at €71.04, down 0.4% over the week. UKAs were also down by 0.3% to close at £49.94. CCAs were up slightly by 0.6% week over week, at $28.20. RGGI declined by 2.2% to $23.13, while WCAs were flat at $62.25.
