Last week ended on a positive note for the European carbon market, marking a fifth consecutive week of gains. Prices were supported by last-minute compliance buying as market participants moved to cover their obligations, while bullish signals from the energy complex provided additional momentum.

After reaching a nine-month high of €88.53 on Monday, the benchmark contract remained at elevated levels throughout the week. During Friday’s session, it traded as high as €87.19 before easing towards the end of the day to settle at €86.89. Despite finishing below Monday’s peak, the contract still secured a 1.6% weekly gain, extending the recent upward trend.

Trading activity also picked up, with around 135 million allowances changing hands, 25% more than in the previous week and close to the typical weekly volumes observed so far this year. Volatility remained elevated, with the benchmark moving between Monday’s high of €88.53 and a weekly low of €84.07 reached on Wednesday.

This morning, EUAs are trading slightly higher despite a sharp decline in European gas prices, underlining the strength of compliance demand as the deadline approaches. The TTF front-month contract has fallen by around 5% in early trading amid renewed hopes that diplomatic efforts could help bring an end to the conflict in the Middle East. The fact that carbon continues to post gains despite the sell-off in gas suggests that near-term compliance needs are currently providing enough support to offset some of the bearish pressure coming from the energy complex.

Beyond compliance flows, geopolitical developments are likely to play an increasingly important role in shaping carbon prices in the coming weeks, particularly through their impact on European energy markets. Weather conditions, however, could provide a counterweight. Milder temperatures and a weaker outlook for heating demand could curb energy consumption and associated emissions, potentially limiting demand for allowances and putting downward pressure on EUA prices.

At the same time, negotiations over the EU ETS review remain firmly in focus, adding a policy dimension to a market already being pulled between compliance demand, shifting energy fundamentals and geopolitical risk. As BBVA analysts noted this morning, “Until the final framework takes shape, policy uncertainty will remain a key driver of carbon pricing.”