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(Bloomberg) — European Union carbon futures extended a rally to the highest in more than two years as funds remain bullish due to the outlook for tighter supplies, adding to costs for generating electricity.
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Benchmark carbon permits climbed as much as 3.5% to the highest since August 2023. Carbon has advanced in recent weeks, despite falling gas costs, as speculators added to bets on even higher prices, with many analysts also expecting further gains.
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Investment funds remain a key driver, according to Karsten Sander Nielsen, a market analyst at Mind Energy. The bullish momentum has been supported by a looming deficit of allowances next year due to a tightening emissions cap and reduced free allocations, ABN Amro Bank NV senior energy economist Moutaz Altaghlibi said in a report on Friday.
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The expiry of the former contract and no allowance auctions scheduled in the coming weeks “could explain why there is extra buying interest here before the Christmas holiday season,” Nielsen said.
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Electricity prices have historically shown a strong correlation with gas. But carbon has become the main driver of power, as rising carbon costs make up a larger share of gas-fired plant operating expenses, said Alina Mitreanu, a procurement practice specialist at consultancy Accenture.
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Carbon permits for December 2026 were up 2.8% at €87.39 a metric ton on the ICE Endex in London. Breaking above a resistance level of about €86.30 could open up an advance toward €90 before year-end, Tom Lord, a trader at Redshaw Advisors, said in a note.
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