August has traditionally been a strong month for the European carbon market, and this year was no exception, with EUAs once again delivering a positive monthly performance. The move fits a well-established seasonal pattern: since 2008, carbon prices have risen in August in all but two years, 2019 and 2023.

The benchmark EUA Dec’26 contract settled at €83.10 on Monday, marking a 2.26% gain over August and extending the advance recorded in July. Despite the back-to-back monthly gains, EUA prices remain around 5% below their level at the start of the year.

August was largely characterised by a lack of clear directional conviction, with subdued trading activity and limited appetite among participants to build sizeable positions, as attention increasingly shifted towards the upcoming negotiations surrounding the EU ETS review and their potential implications for the market’s longer-term outlook.

EUAs spent much of August trading within a relatively narrow €80.54–€84.72 range, showing limited sensitivity to volatility across related energy markets. Trading activity remained particularly subdued, with volumes falling nearly 27% year-on-year to 325.6 million allowances, from 445.1 million in August last year, reinforcing the market’s wait-and-see stance ahead of key policy developments.

As market participants return from the summer break, trading activity and liquidity are expected to pick up, increasing the potential for stronger price moves. However, with bullish and bearish drivers competing for influence, the near-term direction remains unclear.

On the supportive side, last-minute compliance buying could provide an additional source of EUA demand, while the prospect of Germany bringing hard-coal reserve capacity back into the market could strengthen power-sector demand for allowances and offer further support to carbon prices.

The European economic backdrop is also becoming more constructive, with the latest PMI data pointing to a recovery in euro-zone industrial activity despite the impact of higher oil prices and supply-chain disruptions linked to the conflict in the Middle East. 

On the supply side, September will bring the seasonal return of higher auction volumes, potentially creating additional near-term pressure on EUA prices. However, the bearish impact may be partly mitigated by a comparatively tighter supply backdrop, with BBVA analysts estimating that auction volumes will remain around 15% below the levels offered last year.