On Wednesday, the European carbon market initially extended its downtrend. However, sentiment shifted later in the day, with prices rising in response to news of a potential link between the EU and UK emissions trading schemes.

The EUA Dec ’25 contract closed at €69.62, gaining 2% on the day and breaking its usual correlation with natural gas prices. The upward movement was even stronger in the UK ETS, where Dec ’25 contracts surged by an impressive 7.5%.

According to Bloomberg, Spencer Livemore, financial secretary to the UK Treasury, told the House of Lords that the country “continues to explore all options to improve trade and investment with the EU, which includes the UK and EU giving serious consideration to linking our emissions trading schemes.”

This is not the first time prices have reacted bullishly to similar news. “Investors are eager to hear more from the government on whether it wants to unite the two emissions regimes, which would make permits issued in one system redeemable in the other,” writes Bloomberg. 

On 28 January, prices in the UK ETS closed 13,5% higher after Financial Times quoted British officials saying that “the UK had requested that ETS linkage and CBAMs be included on the agenda for the spring summit, expected in March or April.” The idea of holding regular EU-UK summits was agreed in principle last October following talks in Brussels between British Prime Minister Starmer and European Commision President Ursula von der Leyen.

UK allowances were at a record of £97,15 (around €115) in August 2022 but prices have been falling sharply since, reaching a record low of £31,48 (around €36.86) in January 2024 amid concerns over the government’s commitments at that time to reform a market faced with growing surplus.

After an initial brief period of close correlation between UKA and EUA prices, followed by a premium of up to €32, the British carbon price is now trading at a discount of approximately €20, which could complicate future negotiation regarding a common carbon price. Since January 2020, a linkage agreement has existed between the Swiss ETS and the EU ETS, though it took 10 years of negotiations to achieve.