Policy tweaks have played a major role in the European carbon prices — but in the recent couple of days what seems to be the real driver behind is investor behaviour. As the European Commission tweaks with its Carbon Border Adjustment Mechanism (CBAM), traders and funds are calling the shots, slashing positions in the EU market while doubling down in the UK.
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Investor exodus hits EUAs
European carbon allowances (EUAs) fell during the week ending February 28, with December 2025 contracts trading at EURO 72.26 per tonne CO2e (USD 75.19 per tonne CO2e) at 12:45 GMT, down about 4 per cent from the previous week, according to Intercontinental Exchange data. Platts, part of S&P Global Commodity Insights, pegged the December 2025 EUA contract at EURO 72.72 per tonne CO2e on February 27.
However, evidently, the price dip wasn't driven by CBAM news. Investment funds trimmed their net long positions in EUAs, marking the first reduction in eight weeks. Net length fell by 3 per cent, with funds slashing long positions by 8.3 million allowances, or 14 per cent, to 50 million EUAs, according to the latest Commitment of Traders (CoT) report.
"We were expecting [net length] was going to be decreased a bit," an Asia-based carbon analyst divulged, attributing the move to the steady drop in gas and carbon prices in recent weeks, largely driven by geopolitical uncertainties.
Gregory Idil, a senior carbon broker at BRS Shipbrokers, noted the technical underpinnings behind the shift, “Following a mean reversion pattern observed over the last few days after the high inflationary pressure that we saw on both the TTF and EUA markets, the prices of both benchmark contracts are now finding near-perfect symmetry when it comes to the strong support provided by their respective 200 daily moving averages.”
S&P Global Commodity Insights analysts expect EUAs to average EURO 77 per tonne CO2e in March and EURO 76 in April, but with investors driving the market, those forecasts remain at the mercy of speculative flows.
CBAM adjustments — background noise?
The European Commission's plan to adjust the CBAM timeline and introduce a mass-based threshold was met with a mix of technical approval and market indifference. Analysts and traders largely saw the move as an effort to streamline processes without shifting the financial reality for companies.
"Companies will still be on the hook for 2026 emissions but won't need to fully account for them until 2027. This delay doesn't remove the financial burden, it just shifts when it hits,” said Dan Maleski, senior environmental markets adviser at Redshaw Advisors. “For this reason, we don't expect any short-term EUA price impact because the liability doesn't go away and anyone pre-hedging has no reason to change their approach."
Nicolas Endress, CEO of CBAM software solutions company ClimEase, welcomed the changes, saying, "It solves a lot of bureaucratic burdens for small importers." However, he highlighted the ongoing uncertainty over carbon intensity benchmarks, adding, "The elephant in the room is still the [carbon intensity] benchmarks and until they are out, companies have a difficult time placing their orders for 2026."
Without these benchmarks, businesses remain unable to accurately calculate their CBAM tariffs, injecting further uncertainty into corporate planning and budgeting.
UKAs buck the trend as investors go long
In contrast to the EU market, UK carbon prices climbed steadily over the week. UK Allowances (UKAs) traded at £43.34 per tonne CO2e (USD 52.47 per tonne CO2e) at 12:32 GMT on February 28, up around 7 per cent from the previous week, ICE data showed. Platts assessed UKAs for December delivery at £43.46 per tonne CO2e on February 27.
The upward trend followed the UK's Climate Change Committee's (CCC) announcement on February 26, recommending an 87 per cent cut in emissions by 2040 compared to 1990 levels. This forms part of the UK's seventh Carbon Budget, covering 2038 to 2042, as the country pushes towards its 2050 net-zero target.
Investor interest in UKAs remained firm, with funds increasing net long positions by 6 per cent to 13.6 million UKAs, while operators reduced their net shorts by 13 per cent to 2.1 million UKAs, according to the latest CoT report.
While policymakers tweak carbon mechanisms, the markets move to the beat of speculative trading. EUAs slid as investors cut long positions for the first time in weeks, while UKAs rose on bullish bets. For now, traders — not regulators — are setting the pace.
Information credit: S&P Global Commodity Insights
