The European carbon market staged a strong rebound during Tuesday’s trading session, with EUA Dec’26 contracts settling at €78.03 after posting an impressive daily gain of €1.28. The rally pushed prices to their highest closing level since early February.

The upward momentum was fueled by rising optimism over potential EU-UK ETS linkage developments, with the UKA Dec’26 contract settling at £56.67, or around €65, marking its highest level in 15 months after surging nearly 6% in a single trading session.

Both markets reacted to news reported by The Guardian, which quoted an official spokesperson as saying that, ahead of the next UK-EU summit scheduled for this summer, the British government is “negotiating an ambitious package of measures with the EU, including an emissions trading deal.” A European Commission spokesperson also confirmed that talks are under way regarding a potential ETS linkage.

With EU allowances consistently trading at higher levels, Redshaw Advisors noted that “EU installations have the opportunity to buy UK ETS allowances (UKAs), which could potentially be used as a compliance instrument in the EU ETS if linkage occurs, at a discount to current EUA prices.”

However, the consultancy firm cautioned that “delays in the process, perhaps arising from political instability in the UK, or even the unlikely scenario where a deal cannot be reached remain two potential outcomes worth planning for.”

Initially, after the launch of the UK ETS in 2021, UKAs traded at an average premium of around 10% to EUAs. However, the trend reversed in 2023, with UK carbon allowances now trading at a discount of roughly 25% to 35% compared with EUAs.

The next UK-EU summit is expected to take place this summer, although a final date has yet to be confirmed.