EU carbon prices dip as Brussels proposes tweaks to CBAM

European carbon allowances fell during the week ending Feb. 28, largely tracking the gas complex and further curtailments in net length from investors.

But prices did not react strongly to the news that European Commission is looking to alter the timeline for the sale of carbon pricing certificates under its Carbon Border Adjustment Mechanism and move to a mass-based threshold to make the levy more effective and less bureaucratic.

EU Allowances for December 2025 were trading at Eur72.26/mtCO2e ($75.19/mtCO2e) at 1245 GMT Feb. 28, down around 4% since the previous week, according to Intercontinental Exchange data. Platts, part of S&P Global Commodity Insights, assessed the EUA nearest December 2025 contract at Eur72.72/mtCO2e on Feb.27.

The Dutch TTF gas front-month contract, which was down most of the week, however, rallied on Feb. 27, driven by lower wind generation and concerns surrounding storage levels across the EU, supporting EUA prices as well.

"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", Gregory Idil, a senior carbon broker at BRS Shipbrokers, told Platts, indicating a potential stabilization in the market.

Analysts at S&P Global Commodity Insights said the price drop in recent weeks was primarily attributed to a weaker energy market, reduced demand due to mild weather conditions along with concerns about the pace of industrial decline.

They expect EUAs to average Eur77/mtCO2e and Eur76/mtCO2e in March and April, respectively.

Meanwhile, investment funds reduced their net long positions, resulting in a 3% reduction in net length. This marks the first time investors have trimmed positions in eight weeks.

A Commitment of Traders report showed that as of last week, investment funds decreased net long positions by 8.3 million, or 14%, to 50 million EUAs. This is the second consecutive week when funds have trimmed their long bets.

"We were expecting [net length] was going to be decreased a bit," an Asia-based carbon analyst told Platts. This came amid a steady decline in gas and carbon prices over previous weeks, largely driven by geopolitics.

Market participants acknowledged that position-taking by investment funds is currently a major price driver for European carbon, with speculative trading leading to volatility.

CBAM changes

The proposal to simplify CBAM was welcomed by most carbon analysts and traders, with many saying that some of the changes related to CBAM certificates was largely technical.

The changes may relieve some immediate pressure, but the financial risk exposure stays the same, according to Dan Maleski, a senior environmental markets adviser at Redshaw Advisors.

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," he added. "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."

"It solves a lot of bureaucratic burdens for small importers," Nicolas Endress, CEO and founder of CBAM software solutions company ClimEase, told Platts.

"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," Endress added. This happens because, without established benchmarks, companies cannot calculate the cost of their CBAM tariffs, which could be very high already by 2026, adding significant uncertainty to their planning and financial projections.

"The process of getting CBAM-validated benchmarks is still ongoing and there is not much clarity around when it will be completed, but it has to be by the end of the year".

EU's carbon intensity benchmarks are one factor of the end cost of the CBAM tax. The benchmarks reflect a best-in-class emission intensity per product category. The CBAM Tax will then be calculated based on the difference between imported CBAM emissions and this benchmark.

UKAs rise

Meanwhile, UK carbon prices rose steadily in the week, with UK Allowances trading at GBP43.34/mtCO2e ($52.47/mtCO2e) at 1232 GMT Feb. 28, up around 7% since the previous week, according to ICE data. Platts assessed UKAs for December delivery at GBP43.46/mtCO2e Feb. 27.

This rise occurred as the UK's Climate Change Committee (CCC) said Feb. 26 that UK emissions must fall by 87% by 2040 compared with 1990 levels if the country is to achieve net zero by 2050. The CCC outlined a series of recommendations for the UK's seventh Carbon Budget, a five-yearly statutory cap on emissions running from 2038 to 2042.

Meanwhile, funds remained net long for UKAs, according to the recent CoT report. Investors increased length 6% compared to the week before, holding 13.6 million UKAs in long positions. Operators with obligations decreased net shorts by 13% to 2.1 million UKAs.