The European carbon market traded within a narrow €3 range last week, reflecting a notable easing in volatility following the European Commission’s publication of its EU ETS reform proposal, as market participants digested the proposed changes and reassessed their implications.

The benchmark contract declined in four of the five trading sessions, ultimately settling at €81.29 on Friday. This represented a 2.56% weekly loss from the previous Friday’s close, marking the largest weekly decline in two months.

Trading activity also slowed sharply, with weekly volume falling by 40% from the previous week to around 80.3 million allowances, the third-lowest weekly total recorded this year. While subdued trading is not uncommon during the final weeks of July as many market participants head for the summer holidays, this year’s activity was exceptionally weak.

In fact, trading volume during the last week of July was the lowest recorded in at least seven years, suggesting that the muted market reflected not only seasonal factors but also a cautious wait-and-see approach as participants continued to assess the implications of the Commission’s proposed reforms.

Despite the weekly decline, EUAs finished July with a 1.4% monthly gain, demonstrating resilience despite heightened policy-driven volatility during the month. The market now enters a period that has historically been supportive for prices.

Since 2008, European carbon prices have posted gains in August in all but two years—2019 and 2023—pointing to a persistent seasonal pattern of strength during the month. While this trend was initially attributed to the 50% reduction in auction volumes that traditionally occurred in August, it has persisted even after auction schedules changed following the extension of the EU ETS compliance deadline from the end of April to the end of September, resulting in full auction volumes being maintained throughout August from 2024 onwards.

This seasonal pattern remained evident over the past two years, with EUAs rising by 1.92% in August 2024 and a further 0.69% in August 2025, despite the absence of reduced auction supply. This suggests that factors beyond auction seasonality, including market positioning, continue to provide support for prices during the month.

Whether this historical pattern persists this year will largely depend on how market participants assess the European Commission’s proposed EU ETS reforms alongside the evolving macroeconomic backdrop.