UK carbon price down ~40%

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The discount between the UKA and EUA Dec-2026 futures price ballooned to 29% this morning, Thursday 12th February.

But that's not the highest its ever been.

On 21st September 2023 it widened to more than 50% when then Conservative Prime Minister Sunak first pushed back on many of the UK governments net zero targets. Remember this was the first government to enshrine net zero by 2050 into law. That day marked the low as expectations quickly turned to the potential for a closer relationship between the UK and the EU in the event of a Labour government (see Commitment issues).

A year and four months later, on 17th January 2025, the discount once again grew to more than 50%. At the time the UKA price fell to a record low of £31.54 (~€37.35) on fading hopes of a reproachment between the UK and the EU. Around 10 days later the Financial Times reported that UK-EU ETS linkage was now high on the agenda for talks between the UK government and the EU scheduled for later in the spring.

While the latest bout of nerves has not blown the spread up to the same extent, the speed and scale of the recent widening surpasses anything we've seen since the UKA first started to trade at a discount to EUAs in early 2022. So what's behind the latest widening in the UKA-EUA spread and what's the outlook for the rest of the year?

The UKA price had been consistently trading at a ~10% discount to EUAs since the end of 2025. Even after the EUA price fell sharply in late January after it was caught up in the cross-commodity liquidation, the spread remained broadly stable. It has only really begun to widen since last Wednesday (4th February), doubling to almost 30% in one week.

The first potential catalyst was an article suggesting that significant areas of disagreement exist between the UK and the European Commission in their UK-EU ETS linkage negotiations, notably as Carbon Pulse reports, "around the UK's willingness to align its regulation with that of the bloc."