The following is taken from a Live Update for clients, issued by ClearBlue's Market Intelligence team on April 9, 2025.
European carbon markets have remained under intense pressure following the reciprocal tariff announcements on 2 April, which triggered significant volatility across global risk assets. The EUA Dec-25 contract breached critical technical support levels, plunging to EUR 60 on Monday—its lowest level since October 2024. This sell-off shows growing caution in the market due to broader economic worries. Carbon is now trading more like a cyclical asset, reacting to worsening trade conditions and fears of a recession.
The near-term outlook for EUA price remains bearish with a deepening stand-off between the US and China on the trade war front, after the 104% tariff from the US on China taking effect on 9 April. The rhetorics and tit-for-tat retaliations will remain in the headlines as both sides show no signs of giving in for now. This will worsen growing recession fears and highlight the impact of the tariff war on energy use, including the demand for carbon allowances.
Amid these developments, the European Union has also become an active participant in the escalating trade tensions, announcing its own countermeasures in response to recent U.S. tariffs. While the EU is not the hardest-hit trading partner—facing a 20% tariff rate compared to higher rates in countries like China—it has approved targeted countermeasures. These include retaliatory tariffs on U.S. metal products, with further actions under discussion. The EU remains united in its approach, rejecting bilateral negotiations and emphasizing proportionality and collective decision-making. Despite proposing a zero-tariff deal on industrial goods, the EU’s offer was rejected by the U.S.
Key Bearish Catalysts:
Trade War Escalation: The 104% U.S. tariff on Chinese goods (effective 9 April) has deepened the Sino-American standoff, raising concerns over global growth and energy demand destruction. Retaliatory measures are expected to prolong market uncertainty, reinforcing negative sentiment and pushing carbon prices lower.
Systematic Selling Pressure: Commodities CTAs and institutional investors continue to unwind leveraged positions amid equity market turmoil. The EUA-S&P 500 correlation has tightened to high levels, with carbon mirroring intraday equity swings. Notably, Investment Funds cut their long positions in EUA derivatives by 13 Mt in the week ending 4 April, indicating forced deleveraging.
Energy Complex Weakness: Front-month TTF gas collapsed to sub-EUR 35/MWh on 9 April, driven by broad commodity liquidation and demand concerns. While the fuel-switching price (EUR 32–35/MWh) offers marginal support, sustained gas weakness threatens to erode the carbon floor via reduced coal-to-gas switching incentives.
Cross-Market Contagion: The overnight crash in WCI and RGGI carbon prices (9 April) triggered spillover selling in EUAs, underscoring the growing integration of global carbon markets. At the same time, U.S. policy uncertainty—such as Trump’s executive orders against perceived "overreach" in carbon trading—adds extra regulatory risk to the market.
The development in TTF gas price will remain an important driver for the EUA price, too. Front-month TTF contract fell to below EUR 35/MWh on 9 April on the broad sell-off by commodities CTAs and on concerns of lower energy consumption due to the tariff war. Despite worsening tariff disputes and recession concerns, TTF gas could take some support from the dip-buying to fill EU gas storage as well as from the lignite-to-gas switching price, estimated at around EUR 32 to EUR 35/MWh according to our EU ETS power stack model.
With macro headwinds dominating near-term EUA price action, dip-buying from compliance entities and investors seeking a bottom would also be a supportive factor for EUA price, limiting further losses. From the technical analysis perspective, the nearest support levels for the EUA Dec-25 are EUR 60 and EUR 58.81. The resistances are EUR 61.96 and EUR 64.48. The ongoing trade war will likely limit how high EUA prices can go. However, the fact that prices are holding steady at around EUR 60 shows that carbon allowances have a strong underlying value — even during disruptions, they tend to return to fundamentals. These fundamentals include a shrinking supply, as the ETS cap gets tighter and free allowances are being phased out.
If you have any questions about our estimates or need any additional market information, please contact us at marketanalysis@clearbluemarkets.com