UK Carbon Prices Soar Amid Potential EU Market Link

UK carbon futures surged to their highest point since June following comments from a government minister about discussions on potentially linking the UK’s carbon market with the European Union’s larger trading system. The remarks have fueled a rally in UK carbon permits, which currently trade at a discount compared to their EU counterparts.

Philip Hunt, the UK Minister for Energy Security and Net Zero, revealed in a written response to a question in the House of Lords that the government is actively considering the possibility of linking the two carbon markets ahead of the UK-EU summit scheduled for May 19. However, Hunt stressed that these discussions were still in early stages, and no decisions had been made.

UK carbon futures saw a sharp increase of up to 5.3% on Friday, reaching £49 per metric ton—the highest level since June 20.

The government’s exploration of this potential link was further echoed by Spencer Livermore, the financial secretary to the Treasury, who stated last week that the UK is considering all avenues to improve trade with the EU, including the possibility of connecting the two emissions systems. Earlier this week, a body representing members from both the UK and EU parliaments also called for the consideration of a market connection.

Since Livermore’s comments, UK carbon futures for December have climbed over 20%, narrowing the price gap with EU carbon permits to levels not seen since last October.

The government’s latest statements align with the post-Brexit trade agreement between the UK and the EU, which called for “serious consideration” of a market link. Hunt’s comments have added weight to this dialogue, signaling that active discussions are underway ahead of the upcoming summit.

Since Brexit, the UK has operated its own carbon market, separate from the EU’s. If the two systems are linked, permits issued in either market could be exchanged and redeemed within the other, creating a more unified carbon trading system.