UK carbon prices surge on Burnham EU summit pledge

UK carbon prices rose about £3/metric ton of CO2 equivalent Sept. 29 after Prime Minister Andy Burnham confirmed a long-delayed EU-UK summit would take place before year-end, reviving market expectations that the two jurisdictions could move closer to linking their emissions trading systems.

UK Allowances traded at £62/mtCO2e at 1643 BST Sept. 29, up 5.2% from the previous settlement, according to the Intercontinental Exchange. Though prices had already been rising throughout the day, they saw a spike following the conclusion of Burnham's speech.

"Later this year, there will be a UK-EU summit," said Burnham at the 2026 Labour Party Conference in Liverpool. "I will take the opportunity around the summit, to lay out to you, to lay out to the country, what I believe the different options are for Britain's long-term relationship with our European partners."

The topic of linking the EU and the UK ETS was expected to be discussed at the summit, which had seen the spread between EU allowances and UKAs narrow to below €11/mtCO2e when the summit was first announced. The second EU-UK summit, originally planned for July 22 of this year, was delayed following the resignation of former UK Prime Minister Keir Starmer, which saw UKA prices tumble below £60/mtCO2e.

This news follows Burnham meeting European Commission President Ursula von der Leyen at the UN General Assembly on Sept. 23, where the two leaders "discussed the importance of working towards a successful outcome for the next EU-UK summit later in the year," according to a UK government statement Sept. 23.

Linkage sentiment improves

The rally reflects the high stakes riding on the summit outcome. Following Brexit, the UK left the EU Emissions Trading System and established a separate, smaller and less liquid market, a structure that has made UK carbon prices more volatile, according to industry sources.

The divergence also means UK industry faces exposure to the EU Carbon Border Adjustment Mechanism on about £7 billion of trade, according to government estimates, a burden that a successful ETS linkage deal would largely neutralize.

The two sides have agreed to complete a linkage deal by the time of the summit, though a firm date has yet to be set.

Despite the previous delays to the summit, market participants remain optimistic that the linkage between the two carbon compliance markets will proceed.

Prior to Burnham's speech, the spread between EUAs and UKAs had been widening, reaching €19.27/mtCO2e on Sept. 21, the widest since April 22, according to Platts assessments. Platts is part of S&P Global Energy. As of 1517 BST, the nearest December EUA-UKA spread stood at €13.85/mtCO2e, according to ICE data.

"A slow grind to £65/mtCO2e is likely," said a UK-based trader.

As the linkage progresses, the market expects the spread to narrow. Analysts at S&P Global Energy CERA said in a recent note that the spread is likely to remain around €14/mtCO2e to €18/mtCO2e until there is "concrete progress".

"If linkage is formalized and UKAs converge toward EUAs, the implied UKA price would be in the £65/mtCO2e to £72/mtCO2e range at current EUA levels and £/€ exchange rates," they added.