Last week was a crazy one for the European carbon market, with most participants thoroughly bemused by it all. Prices jumped upwards over two sequential days (Tuesday and Wednesday), adding 13% and closing at 6.7 €/t on Wednesday, despite there being little fundamental news to support such a move. A joint statement on Monday by French and German governments calling for joint carbon price action had some supportive elements, but it offered little new and some elements were outright bearish. On Thursday, the joint EU EUA auction (4.2 Mt) failed to clear above the reserve price and was cancelled, with bids coming in too far below the prevailing market prices—if the market was really as tight as the upward secondary market price movement suggested, then there should have been sufficient demand at the auction. The market then responded by closing even higher, with the Friday close up at 7.07 €/t, a 19-month high. This suggests that last week’s price movement was driven by some market participants having a vested interest in pushing up prices. Certainly, the general consensus was that prices were due for a downward correction following the ramp-up in auction supply after constrained August auctions. If you were long EUAs at the start of last week, a big drop would punish the VAR, which may lead some traders to try and exit positions as some of the shorts out there get stopped out. Regarding upside risk, today’s news that, as part of revisions to the EU ETS airline provisions, a last-minute amendment is been considered by MEPs which would stop UK installations selling EUAs issued or sold by the UK government from 2018, if their obligations under the EU market were to lapse. Such a proposal would be bullish for non-UK EUAs, and it is somewhat concerning that these details emerged just after last week’s surprise market surge.