Investment Commentary December 2025

In December EUA prices continued their upwards trajectory with speculative length increasing to record levels in anticipation of the annual auction pause and deficit in forthcoming supply. According to CoT (Commitment of Traders) figures investment funds had amassed 114Mt of net length, with the prospect of cold weather in early 2026 helping to further support prices in the absence of primary supply. The Dec-25 option expiry was largely uneventful, whereas following expiration of the front futures contract the incoming Dec-26 continued to climb, closing the month at €87.37, up 2.21% month-on-month. On the regulatory front, the trilogue process between the EU Commission, Council and Parliament resulted in a compromise agreement being reached on the legislative framework underpinning 2040 EU climate law. Of particular interest to the market was the amount of international offsets permissible for emissions reductions, agreed as 5% of the 90% reduction in EU-wide emissions compared to 1990 levels.

The UK carbon market exploded into life in mid-December, having initially struggled to match the gains of EUAs. The discount to its EU neighbour had continued to widen, reaching above €20 as UKAs remained well offered and investment funds trimmed their overall exposure. However, a statement from the EU reaffirming their intention to conclude market linking discussions by the Spring 2026 UK-EU summit led to a surge in prices, with the incoming Dec-26 contract jumping to close the year at £67.07, up 9.21% from November. The  break in the auction calendar until mid-January added to the bullish narrative, helping to narrow the spread to EUAs to below €11.

In the US, CCAs rebounded as participants digested the supply of the November auction. However, regulatory issues continued to add uncertainty to the market, with updates regarding program implementation details remaining unresolved heading into year-end. The incoming Dec-26 V26 contract ended the month at $32.90, up 6.57% from the previous month’s close.

RGGI price levels cooled in December as the market absorbed the volume of the quarterly Q4 auction. Clearing at $26.73, this set a record settlement level for RGGI but was below prevailing secondary market levels. The bid-to-cover ratio at 2.4 was the lowest recorded in 2025, perhaps indicative of falling demand amongst compliance entities as prices have risen. The Dec-26 V26 contract subsequently closed November at $26.29, down 10.84% month-on-month.

The Greenedge Carbon Allowances Absolute Return AMC recorded a 7.06 % performance for December. Advances in both EUA and UKA prices continue to underline both markets’ strong fundamental outlook, with the UK outperforming its EU counterpart on the back of positive linking news. In the US, CCAs remain subdued against the backdrop of continued regulatory uncertainty, whilst RGGIs have exhibited volatility around the quarterly auction and seasonal weather patterns. Overall, the European market continues to present opportunities as the supply deficit begins to bite in 2026 and UK-EU linking talks reach a conclusion in Spring. However, a degree of event risk will remain, with both markets susceptible to volatility on adverse regulatory news.

Adrian Tinsley
CIO

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