EUA prices continued to drift higher last week, with little in the way of short-term fundamentals supporting the move. The deadline for allocating free allowances was end-February, but some countries were tardy as usual and only 562 Mt (74%) of the total allowed allocation was distributed. Spain and Finland, which have yet to complete any allocations at all, are most behind. Of the other countries, only Ireland and Italy have completed less than 50% of their allocation. In previous years, there has been some softness in early March prompt price formation as installations have taken the receipt of free allocation as an opportunity to raise cash with those allowances. A common trade would be to sell EUAs spot to raise some cash and then buy them back in the front-year December or next-year March contract for compliance. Another trade would be for industrials to outright sell some of the surplus it would expect to have for the year, though it was more common for such length to be gradually unwound through the year. Some of the former trade is likely to occur this year (which would be supportive of the Dec-18 contract). However, we think very little of the second trade will be seen this year. The first reason is that fewer installations are likely to have much length because the cap reductions have cut into free allocation and industrial production numbers have been much stronger in the last year. Second, installations have been able to borrow from the current year’s allocations to comply with the previous year’s allowance requirements. One little-highlighted change to phase 4 is that such borrowing will no longer be permitted. While this will not stop the practice in 2018, any installations that have been borrowing will need to purchase allowances back to cover what has been borrowed by the start of the next phase, adding more buy-side pressure into the market.