Recoupling?

The thaw in the often frosty relationship between the UK and European Union appears to also extend to their respective carbon markets. Both emission trading schemes now appear to have set course in the same direction, shifting towards a gradual alignment, and even opening up the potential for a future link-up.

Before getting into the detail of the UK governments recent policy proposals, and how they mirror those across the channel, lets first recap how the two carbon markets have performed over the past six months. The price of carbon allowances in the UK ETS (UKAs) and EU ETS (EUAs) have converged since December 2022, and are increasingly moving in lockstep. Up until then UK obligated emitters were consistently paying 10-15% more than their European counterparts, although that had dramatically narrowed during the fourth quarter.