Carbon remains highly in focus for institutional clients, and this quarter’s report covers the highs and lows of the period. Volatility remains a feature and yet the long-term thesis is fully intact if not materially more promising. Long-term forecasts remain consistent, and today’s prices make them more attractive than 3 months ago.

European carbon continues to reflect the ongoing themes from last year of lower emissions from muted industrial output and added frontloaded supply to help fund the REPowerEU initiative. However, we see this as just a short-lived subdued window for EUAs. As the recovery trends in industrial activity take hold, we believe they will help return momentum to the market in the near term while the supply-tightening policies support long-term appreciation.

Meanwhile, California’s market is awaiting policy updates as the regulator closes in on the program reform. CCAs saw some volatility following a sharp technical sell-off into the March option expiration, though this pressure was quickly alleviated; post-option expiration, the market recovered as we expected.

The Regional Greenhouse Gas Initiative (RGGI) has been the top performer*, continuing to climb to new highs, moving on increased buying from compliance entities and the anticipation around their program reform. The United Kingdom has doubled down on policy with its response to the EU’s Carbon Border Adjustment Mechanism (CBAM) by launching its own carbon border tax.

As carbon markets continue to cover more industries and expand into new regions, we see this space positioned for further growth. Thanks for reading and please also follow our weekly Climate Market Now blog.

*Among the Emissions Trading Systems covered by KRBN in Q1 2024.

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