Carbon prices in the UK ETS are currently trading at levels roughly half of their European equivalent. Last month, the UKAs dropped to its lowest at £33,50 (around €38) while the EUAs were trading comfortably above €80.

The collapse was caused by the British prime minister justifying his view on climate reform. According to Rishi Sunak, the country would fight climate change “in a better, more proportionate way,” adding that “politicians in governments of all stripes have not been honest about costs and trade-offs.”

The UK ETS was launched in January 2021 and replaced the country’s participation in the EU ETS. During its initial trading, the price for carbon in Britain was nearly 10% higher than its counterpart, and for a while, prices for both the EUAs and the UKAs traded at parity. 

The huge discrepancy between the carbon prices was caused by several decision made by the government, weakening some of the climate initiatives. In July, the executive “surprised the industry by announcing that it would make more allowances available than anticipated” as stated by the Financial Times, releasing an additional 53,5 million allowances between 2024 and 2027 to prevent a sudden drop in supply.  

“The UK government has made it cheaper for industry to pollute in Britain compared with the EU by watering down reforms to the carbon market,” wrote the Financial Times last summer, blaming the Conservative party for its low ambition level regarding the climate commitments.

However, if carbon prices continue to trade at huge discounts to their European equivalent, the UK industry would make up for the difference,  in order to comply with the CBAM from 2026 on. However, taxes would be “heading to Brussels, instead of going to the Treasury,” as stated by Marcus Ferdinand, from carbon consultancy Veyt.