EU Carbon Hits EUR 78 as Iran Strikes Lift the Entire Energy Complex

EU Carbon Hits EUR 78 as Iran Strikes Lift the Entire Energy Complex EUA Dec 26 and UK carbon both reached three-month highs on Tuesday, pulled higher by gas and power rather than compliance fundamentals. ICE EUA Dec-rolling jumped to EUR 78.35 per tonne on Tuesday, the highest level since February 11, Montel reported. UK Allowances also surged to a three-month high. The moves came after fresh US strikes on Iran reignited supply fears across the energy complex, pushing gas, power and carbon higher in lockstep.⁷ Carbon Pulse reported that European carbon prices recovered after an initial decline triggered by the United States' rejection of Iran's latest peace proposal over the weekend. EUA prices made strong gains in the afternoon as positive fundamental sentiment spread among traders. UKAs also jumped on the same momentum. The recovery pattern was telling: carbon sold off on the diplomatic headline, then rallied harder once the market concluded the war risk premium was not going away.³ The link between carbon and gas is mechanical. When ICE Endex TTF front-month gas prices rise, coal-to-gas switching economics shift. Gas becomes more expensive relative to coal for power generation. Generators burn more coal. More coal burn means more emissions. More emissions means more EUA demand. The chain is direct, and it has been running hot since the Iran war began.⁶ Elenger's gas market review for Q1 2026 put the trajectory in context. ICE Endex TTF front-month futures closed Q4 at EUR 26.73/MWh but rose above EUR 33/MWh in January, an increase of more than 20% before easing somewhat in February. The first quarter was characterised by volatility driven by cold weather and geopolitics. That same volatility has now pushed TTF high enough to drag carbon along with it.⁴ Europe's second energy crisis in four years is forcing policy shifts that matter for carbon. Montel reported that Italy is delaying its coal phase-out, Germany's economy minister has raised nuclear power as a possibility, and the UK is under renewed pressure on energy costs. Each of these policy responses works against the EUA supply reduction that underpins the carbon price floor. If coal plants stay open longer, they need more allowances. But if policy eventually forces faster phase-outs, the allowance surplus shrinks faster.¹ The UK market has its own complications. An analyst told Montel that UK consumers could be facing higher electricity bills amid concerns of market manipulation. Capacity hoarding during interconnector trading with Europe is allegedly inflating the balancing costs charged by transmission system operator Neso. Ofgem, the regulator, confirmed there have been instances when parties submitted bids to capacity auctions at extremely high prices, well above the imbalance levels subsequently observed. If the regulator acts, it could dampen the volatility that has been supporting UKA prices alongside the gas-driven rally.² CNBC reported that European power prices have spiralled to multi-year highs on strong commodity and carbon prices combined with low wind output. The energy analysts quoted warned that the record run in prices was not expected to end soon. For carbon, the risk is that power prices stay high enough to sustain gas-to-coal switching economics well into the summer, keeping EUA demand elevated even as industrial activity softens.⁶ Bruegel's natural gas demand tracker noted that high and volatile European energy prices have been driven by extraordinarily tight supply-demand balances, particularly for natural gas. The two solutions are to increase supply or reduce demand. Neither is arriving fast enough to break the cycle that is currently lifting carbon.⁵ The signal to watch is whether the EUA Dec 26 contract can hold above EUR 75/t through the end of May. The three-month high at EUR 78.35 was achieved on geopolitical momentum. If ICE Endex TTF front-month retreats on any ceasefire progress, carbon will follow it down. The correlation between gas and carbon has been the trade of 2026 so far. Its persistence or breakdown is the question.^7,3