UK carbon prices rally 7% on day amid news of EU ETS linkage considerations

Prices for UK carbon allowances jumped 7% in the afternoon of March 12 following reports that the UK was considering linking its domestic emission trading system with the European counterpart.

The UK and the EU were said to be giving "serious considerations" to linking their emissions trading systems, Spencer Livermore, financial secretary to the Treasury, said during a discussion about the carbon border adjustment mechanism in the House of Lords.

"We continue to explore all options to improve trade and investment with the EU, which includes the UK and the EU giving serious considerations to linking our emissions trading schemes," Livermore told lawmakers March 12.

Platts, part of S&P Global Commodity Insights, assessed the UKA contract for the nearest December 2025 delivery at GBP41.29/mtCO2e ($53.56/mtCO2e), up GBP2.68, or 7%, on the session March 12. The price hike comes after an otherwise stable trading session, with prices beginning to rally in the afternoon.

"In my view, this is a standard stock answer from the UK government and simply repeats what is in the trade and cooperation agreement," a UK-based carbon broker told Platts.

The UK-EU Trade and Cooperation Agreement, signed in the aftermath of the UK's departure from the EU, commits to "give serious consideration to linking their respective carbon pricing systems in a way that preserves the integrity of these systems and provides for the possibility to increase their effectiveness."

Livermore further said the alignment was seen as helpful for UK competitiveness.

"We recognize that this can reduce administrative burden, so we will align where appropriate and follow developments on the EU CBAM very closely," Livermore said.

The European Commission released a proposal Feb. 28 for implementing changes to its carbon pricing certificates. Under the new proposal, importers will be able to purchase CBAM certificates starting in February 2027 rather than from Jan. 1, 2026, to cover the emissions embedded in their imports for 2026.

Furthermore, companies importing less than the 50 mt threshold would be exempt from the obligations to purchase certificates. At the time, analysts noted the changes would relieve the administrative burden on smaller importers.

The UK version of the carbon border mechanism is due to come into effect in 2027. In October 2024, the UK government published a consultation response outlining considerations for small and medium enterprises.

CBAM will only apply to companies importing CBAM goods valued at GBP50,000 or more over a 12-month period, with the government estimating that this will exclude 80% of CBAM-eligible companies while retaining over 99% of imported emissions.

UK carbon prices rallied in January amid initial reports of a potential linkage between the two systems.

The UKA nearest December 2025 contract hit a near eight-month high of GBP48.41/mtCO2e Feb.10 after rising by 20% compared to the beginning of the year.