Following the strong rally that began in the second half of May and pushed EU Allowance (EUA) prices above the €80 threshold for the first time since February, the European carbon market lost momentum during the first week of June.

The December 2026 EUA contract fell to an intraday low of €76.25 on Friday, its weakest level in two weeks, before recovering part of its losses to settle at €76.94. Despite the late-session rebound, the contract ended the week down 4.57%, marking the European carbon market’s first weekly decline in more than a month and its steepest weekly drop since late February.

The latest Commitment of Traders report, published last Wednesday and based on data as of 29 May, revealed that speculative traders increased their long positions to the highest level in two months, while trimming their short positions to the lowest level since the end of 2022.

However, according to Carbon Pulse, the weakness that dominated trading last week appears to have been driven by “traders continuing to liquidate long positions” that had been accumulated during the previous week.

The increase in auction supply is adding to bearish pressure. Trading volumes rose sharply in June to approximately 51.5 million, compared with 33.5 million in May, representing a 54.1% month-on-month increase. The substantial rise in supply is providing a real test of the market’s ability to absorb the additional volumes.

The market also reacted to reports revealing details of the proposed new ETS Investment Booster, which would involve the sale of 400 million allowances to raise funds for decarbonisation initiatives. According to Platts, these allowances “will come from new entrant reserves and existing free permit buffers….which is effectively considered new supply, as the volumes were not expected to be used until a later phase of the EU ETS.” The prospect of additional supply entering the market added to concerns over the near-term balance between supply and demand.

Adding to the uncertainty, the EU’s upcoming review of its carbon market could delay the phase-out of free emissions allowances by as much as three years, as stated by analysts.  

Looking ahead, the outlook for EUA prices over the summer remains highly uncertain, with a number of competing drivers likely to shape market direction. Weather conditions will be a key variable to watch, as heatwaves and droughts can significantly influence power demand, generation patterns and, ultimately, carbon emissions. As a result, weather-related risks are expected to play an increasingly important role in price formation during the summer months.