Market Barometer, August 2026: Carbon costs climb while lumber demand falls

Compliance carbon prices firmed across the major North American and European schemes this month, while timber moved the opposite direction. The European Union Allowance (EUA) settled near €81.50 a tonne on August 19, 2026, holding well above spring levels even after a pullback from an eight-month high above €85. The Regional Greenhouse Gas Initiative (RGGI) cleared its June auction at $35.00 a ton, up roughly 40 percent from March, and California’s cap-and-trade allowances closed their most recently settled auction at $28.81. CME lumber futures, by contrast, fell 10.59 percent over the trailing month to $577.61 per 1,000 board feet, and US housing starts dropped 13.5 percent year over year in July. Carbon is getting more expensive to emit. Building is getting less frequent. For anyone specifying materials or trading credits across both markets, that divergence is this month’s story.

Compliance carbon

The EUA, the tradable unit underlying the European Union Emissions Trading System (EU ETS), settled at €81.50 a tonne on August 19, 2026, down 2.13 percent over the trailing month after touching €85, its highest level since January, according to Trading Economics. The European Commission published a Phase 5 reform proposal for the EU ETS on July 17, 2026, covering the 2031 to 2040 trading period. The draft slows the scheme’s annual emissions reduction pace after 2031, extends free allowance allocation for industrial sectors through 2038, eases the Market Stability Reserve’s withdrawal rate starting in 2028, and creates a new €100 billion Industrial Decarbonisation Bank. The Irish presidency of the Council of the European Union is targeting agreement by year end, with implementation likely closer to 2028.

The European Union’s Carbon Border Adjustment Mechanism (CBAM) entered its definitive regime on January 1, 2026, though the first certificate purchases do not begin until February 2027, with a September 30, 2027 surrender deadline. On August 14, 2026, the European Commission published 10 new guidance documents covering sectors including cement, iron and steel, and aluminum, intended to help non-EU producers report actual emissions data rather than default values ahead of that deadline.

RGGI Inc.’s most recent quarterly auction, held June 3, 2026, cleared at $35.00 an allowance, up from $24.99 in March, a jump of roughly 40 percent in a single quarter, with the next auction scheduled for September 9, 2026. In California, the joint California-Québec program’s 47th auction, held in May 2026, settled current-vintage allowances at $28.81, up $0.87 from February. California and Québec held their 48th joint auction on August 19, 2026, the same day this article publishes, with results not yet available at deadline. A Manufacturing Decarbonization Incentive proposal the California Air Resources Board (CARB) advanced in late May would create 118.3 million additional allowances outside the program’s declining cap, a move the state’s own Legislative Analyst’s Office estimates could cut Greenhouse Gas Reduction Fund revenue roughly in half.

Voluntary carbon

The clearest signal in voluntary carbon this quarter is not a headline price, it is the spread between credit qualities. Sylvera’s Q2 2026 Carbon Data Snapshot, published July 13, 2026, found the average voluntary credit price rose to $6.41, up from $5.29 a year earlier, but that average masks a widening split. Improved forest management credits rated BBB+ or higher traded at a $5.59 premium over credits rated BB or below in the first half of 2026, more than four times the $1.32 gap measured over the same period in 2025, and BBB+ rated REDD+ credits rose 71 percent to $8.40 while BB-rated and lower REDD+ credits fell 26 percent to $1.82. Total retirements fell 10 percent year over year to 38.55 million credits even as total market value rose to $247 million from $227 million, evidence that buyers are paying more for fewer, better documented credits rather than buying more volume. A separate report from Calyx Global and ClearBlue Markets, published in January 2026, found the highest integrity tier of credits traded at roughly a 50 percent premium to the lowest tier.

Registry infrastructure kept moving too. Verra’s rebuilt registry platform, developed with S&P Global Commodity Insights, went live in the final days of July, consolidating more than 5,900 projects, 10,500 account holders, 1.4 billion issued credits and 125,000 supporting documents onto a single system. The Integrity Council for the Voluntary Carbon Market (ICVCM) added three more Core Carbon Principles (CCP) eligible programs on August 4, 2026, bringing total CCP coverage to roughly 95 percent of cumulative voluntary market issuances across 13 approved programs. Spot pricing across project types remained wide: an early July assessment from the carbon data platform Emsurge put improved forest management credits at $15.22 a tonne and REDD+ at $4.92, while CORSIA Phase 1 labelled credit supply, roughly 1.33 million tonnes against an estimated 137 million tonnes of demand, remained a fraction of what airlines will eventually need.

Timber

CME lumber futures settled at $577.61 per 1,000 board feet on August 19, 2026, up 1.25 percent on the day but down 10.59 percent over the trailing month, a retreat from a tariff driven rally that had pushed prices above $630 in mid-June, their highest level since October 2025. Demand signals weakened sharply behind that pullback: the Census Bureau’s July 2026 report, released August 18, 2026, put seasonally adjusted annual housing starts at 1.239 million units, down 12.4 percent from June and down 13.5 percent from July 2025, with single-family starts falling to 808,000 units. Building permits, a forward looking indicator, rose 5 percent to 1.443 million, a divergence worth watching into the fall building season.

Mill activity was mixed, per Forisk’s August 2026 Forest Market Bulletin. Harrigan Lumber restarted a second shift in Monroeville, Alabama, and J.D. Irving is raising output at its Ashland, Maine mill from 130 to 250 million board feet, while Carrier Forest Products plans an indefinite curtailment at its Big River, Saskatchewan mill starting October 16, and Canfor permanently closed its Fox Creek, Alberta mill. Net Southern US capacity is still expected to grow by 2.1 billion board feet through 2028.

Trade policy added a new layer this week. A 50 percent tariff on Canadian goods took effect August 19, 2026 under Section 338 of the Tariff Act of 1930, exempting raw softwood lumber, which already carries a 10 percent tariff under Section 232 of the Trade Expansion Act of 1962 plus antidumping and countervailing duties Commerce set preliminarily at a combined 20.70 to 31.02 percent, layered against a currently enforced rate of 35.19 percent. Canadian softwood exports reflected the strain even before the new tariff: total exports fell 12 percent year over year to 13.2 million cubic meters in the first half of 2026, with the average export price down 16 percent to C$186 a cubic meter, per Lesprom Analytics. British Columbia’s interior stumpage tabular rates, last updated April 1, 2026, range from C$0.60 to C$31.75 per cubic meter by species and zone.

Cross-market read

Put the two markets side by side and a builder’s cost structure is getting squeezed from directions that used to move independently. Compliance carbon costs are rising in Europe, holding firm in California and jumping in the Northeast, and those costs flow into the cement, steel and glass prices embedded in every Environmental Product Declaration a specifier reviews. At the same time, tariff layers on Canadian wood products are adding cost even as raw lumber gets a partial exemption, and housing starts are falling fast enough that mills are curtailing capacity in the same month others are expanding it. These used to be separate conversations, one for the sustainability team, one for purchasing. They are converging because carbon compliance costs and material costs increasingly land on the same line item of a project pro forma.

The voluntary market’s bifurcation matters here too. Buyers are paying substantially more for documented, high integrity credits and considerably less for everything else, which mirrors what is happening in embodied carbon and EPDs this quarter, where a rewritten international EPD standard and a lower CALGreen compliance threshold both push toward more rigorous, better verified documentation. The market is rewarding proof over volume, whether the underlying asset is a ton of avoided forest emissions or a cubic yard of low carbon concrete. The projects that pencil out best over the next two quarters will be the ones where procurement, sustainability and finance are already comparing notes across both ledgers.

What to watch in September

RGGI Inc. holds its next quarterly auction on September 9, 2026, the first test of whether the June jump to $35.00 holds. Results from California and Québec’s August 19 joint auction should publish within a week or two and will show whether allowance prices kept climbing past $28.81. Commerce still owes final results in the seventh administrative review of Canadian softwood duties, overdue since mid-August, which will replace the preliminary 20.70 to 31.02 percent range. And the EU ETS Phase 5 reform proposal moves into Council and Parliament negotiations this fall, with the Irish presidency targeting year-end agreement, a timeline worth tracking for anyone modeling compliance costs into 2028 and beyond.

We’ll be back with the September Barometer in the third week of the month.