Investors call the shots — speculative moves eclipse policy shifts in carbon markets

Policy tweaks have played a major role in the European carbon prices — but in the recent couple of days what seems to be the real driver behind is investor behaviour. As the European Commission tweaks with its Carbon Border Adjustment Mechanism (CBAM), traders and funds are calling the shots, slashing positions in the EU market while doubling down in the UK.

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Investor exodus hits EUAs

European carbon allowances (EUAs) fell during the week ending February 28, with December 2025 contracts trading at EURO 72.26 per tonne CO2e (USD 75.19 per tonne CO2e) at 12:45 GMT, down about 4 per cent from the previous week, according to Intercontinental Exchange data. Platts, part of S&P Global Commodity Insights, pegged the December 2025 EUA contract at EURO 72.72 per tonne CO2e on February 27.

However, evidently, the price dip wasn't driven by CBAM news. Investment funds trimmed their net long positions in EUAs, marking the first reduction in eight weeks. Net length fell by 3 per cent, with funds slashing long positions by 8.3 million allowances, or 14 per cent, to 50 million EUAs, according to the latest Commitment of Traders (CoT) report.

"We were expecting [net length] was going to be decreased a bit," an Asia-based carbon analyst divulged, attributing the move to the steady drop in gas and carbon prices in recent weeks, largely driven by geopolitical uncertainties.

Gregory Idil, a senior carbon broker at BRS Shipbrokers, noted the technical underpinnings behind the shift, “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.”

S&P Global Commodity Insights analysts expect EUAs to average EURO 77 per tonne CO2e in March and EURO 76 in April, but with investors driving the market, those forecasts remain at the mercy of speculative flows.