August Pricing Analysis - Global Compliance Carbon

SUMMARY

European allowances extended July's rally through August, tracking a broader gas and energy rally tied to Hormuz-linked supply risk and summer heat before breaking out in the final week as EUA and UKA both hit monthly highs alongside a five-month gas high, then pulled back into month-end. UKA continued to underperform EUA, widening the spread further, with no EU-UK linkage summit yet confirmed since the UK's change of prime minister; the EU carbon strip also steepened toward year-end, and volatility in both schemes compressed to six-month lows. Asia-Pacific saw the sharpest moves in the complex: Korean KAU extended its rally for a second straight month on firmer auction clearing and sustained compliance demand, while Australian LGC posted the largest single-market gain on a policy announcement and renewable-certificate speculation. New Zealand NZU bucked the trend, pulling back sharply on the final trading day as pre-election liquidity dried up. Heading into September, the open catalysts are the EU ETS reform and fallback-benchmark timeline and any progress toward an EU-UK linkage summit.

MARKET ACTIVITY

KAU

• KAU opened at $17.96, reached a monthly high of $21.58 (20-Aug), closed at $21.38 (28-Aug, +19.0% open-to-close, +17.0% MoM average); the August auction cleared at KRW 27,900 (12-Aug, +9.8% vs July's KRW 25,400), above the secondary market average, confirming compliance-driven demand.

CEA

• CEA held $14.35–$14.67 through August (monthly average $14.47); open-to-close was flat at +0.1% ($14.52 to $14.53) — the +9.8% MoM average gain reflects July's lower base, not August momentum.

NZU

• NZU opened at $33.66, peaked at $34.20 (24-Aug), closed at $34.14 (+1.4% open-to-close, +3.4% MoM average); fell a further -6.5% on 31-Aug as parliament rose ahead of the 7 November election.

PRICE ACTION

CROSS-MARKET DYNAMICS

• Carbon initially lagged a gas-led energy rally in the first half of the month: a heatwave and continuing Hormuz-linked LNG uncertainty lifted gas prices from 3-7 Aug while EUAs only trimmed earlier losses.
• A brief decoupling followed in the week of 10-14 Aug, with gas futures reportedly up roughly 11% on low storage and Hormuz tensions while carbon eased, consistent with the flattest week of the month in the EUA/UKA data.
• The relationship reconverged by 24-Aug, when EUAs rallied to a one-month high in sync with gas at a five-month high as European lawmakers returned to work from summer recess; the EUA/UKA monthly highs printed the following session (25-Aug).

CROSS-REGIONAL DYNAMICS

• August's range ($14.08-$16.12/t) sat entirely above July's post-reform low of $11.83/t (17-Jul), the day the ETS reform package briefly compressed the spread; no equivalent compression event occurred in August.
• UKA underperformed EUA on both bases: +2.81% average vs EUA's +3.08%, and +2.26% open-to-close vs EUA's +3.55%; the same asymmetry July's note attributed to linkage-timing expectation rather than scheme-specific fundamentals.

DATA & POSITIONING

EUA

• Front December $93.27/t (03-Aug) to $96.32/t (28-Aug), +3.27%; Dec+5 $111.89/t to $116.10/t, +3.76%; front-to-Dec+5 premium widened from -$18.62/t to -$19.78/t, a further $1.16/t of steepening.

UKA

• Front December $79.18/t to $80.62/t; Dec+2 $87.74/t to $89.24/t; front-to-Dec+2 barely moved, -$8.56/t to -$8.62/t.

• The cost of rolling EUA coverage down the strip rose again in August (+$1.16/t), continuing but at a slower pace than July's +$2.02/t widening on the front-to-Dec+5 premium; the UKA equivalent was essentially flat, consistent with the convergence trade sitting on the EUA leg of the curve rather than the UKA leg this month.

SOMETHING TO WATCH

• California Cap-and-Invest rulemaking finalized:
  • Observation: California's Office of Administrative Law approved the state's updated Cap-and-Invest regulation, finalizing a multi-year overhaul of its emissions trading scheme.
  • Why it matters: This is the formal end of the rulemaking process that's been running since the amendments were first proposed.
• NZU pre-election liquidity risk:
  • Observation: NZU fell -6.5% on 31-Aug as parliament rose ahead of the 7 November election.
  • Why it matters: A short-term political event risk which will result in liquidity drops.
  • What to monitor: Politicians' campaign policy announcements and auction volume consultation outcomes through October.
• Carbon-gas co-movement as the reform/linkage signal:
  • Observation: European carbon tracked gas loosely through August, lagging a Hormuz-linked gas rally in the first half before both rallied together into the Aug 24-25 high.
  • Why it matters: With gas still elevated on Hormuz-related tightness, continued co-movement would keep carbon supported, while a re-decoupling (briefly seen Aug 10-14) would signal reform-timeline or linkage factors reasserting as the primary driver.
  • What to monitor: Gas direction alongside daily EUA closes and any further Hormuz escalation or de-escalation.

Note: All figures, prices and market activity referenced in this report are based on the period covered by this monthly update.