The UK carbon market continues to dodge political headwinds...but for how long?
The UK carbon market is making a convincing case for being the strongest ‘Currency of Decarbonisation’.
UK emission allocation (UKA) prices continue to trade over €90 per tonne, even despite experiencing a sharp sell-off in recent weeks.1
After hitting a daily settlement record of over €115 per tonne on the 19th August, UKA prices dropped €27 per tonne, shedding almost one-quarter of their value over the next 13 trading days. In comparison EUA prices experienced a decline of over one-third, falling to below €70 per tonne.
Despite both carbon contracts rebounding slightly over the past week the UKA premium versus the EUA contract remains close to 30%.
As I have highlighted before, there are two main reasons why the price of carbon in the UK should naturally trade higher than in the EU carbon market: low levels of liquidity on the UK ETS and energy market, and a fundamentally tighter market for UK emission allowances (see Majestic performance).