16th December 2025
- 2025 carbon prices close on a high
- Support falling on CBAM’s imminent introduction
- UK ETS to be expanded to cover domestic maritime
- UKA free allocation application
2025 carbon prices close on a high
The EU carbon market closed out 2025 at 17:00 on the 15th December at a two year high of €85 as predicted by Sturgeon Ventures at the beginning of the year. This represents an overall price rise of 18.5% over the period. By contrast, the UK carbon market closed out 2025 at £56.98 an increase of 56.6% on the year. As auctions for 2025 come to an end we expect prices to continue to rise although at a slower rate due to the holiday period. The new year begins with a review by UK installation of 2025 emissions prior to making balancing purchases in Q1 2026, which has the potential to push prices higher. The spread between the markets widened to €20.16, however linking discussion will increase during 2026. Whilst we expect UK carbon prices to rise next year the cost containment mechanism cannot be triggered until May 26 at a current rate of £124.96.
Support falling on CBAM’s imminent introduction
Major industrial companies across the EU are beginning to question whether the system is ready. The main issue for concern is around the phasing out of free allocation with industry pushing to retain free allocation as CBAM is being described as too complex, not ready, full of loopholes and unlikely to work in practise. Industry is stressing free allocation should remain in place until CBAM is proved effective. Free allocation currently covers around 90% of industrial emissions representing around €39 billion between 2021 and 2025. CBAM is meant to replace free allocation with a 2.5% reduction in 2026 increasing to 100% in 2034. However, after many years of generous public support industries are still trying to avoid paying for pollution. If the EU wants a functioning ETS then CBAM needs to be extended to more sectors, phase out free allocation as planned and direct revenue to genuine transformation.
UK ETS to be expanded to cover domestic maritime
From 1st July 2026 ships with a threshold weight of 5,000GT will be included in the UK ETS with a further review in 2028. Double surrendering will be allowed for the first two scheme years covering July 2026 to December 2027. Offshore ships will be included from 1st January 2027 and a 50% surrender deduction will be allowed for voyages between GB and NI. Ferry services to Scotland’s islands will be exempt, together with fish catching and fish processing ships. A consultation is seeking views on expanding the UK ETS to include emissions from international maritime voyages which requires a response by the 20th January 2026.
UKA free allocation application
The UK authority confirmed last year the extension of the current free allocation to include 2026. Application for free allocation for 2027-2030 will take place between 1st April and 30th June 2026. During this period operators must confirm they wish to continue or withdraw an application made in 2025, Furthermore, if a first stage application was not made then they cannot apply in 2026. Operators must confirm UK CBAM status of sub-installations, and indicate whether their 2020 and 2021 data be excluded from the calculation of the historical activity levels For further information contact emissions.trading@energysecurity.gov.uk
For further in-depth analysis contact: swatson@sturgeonventures.com
Disclaimer:
This newsletter is intended solely for the information of professional clients, including large corporates and public sector bodies such as universities and hospitals, and eligible counterparties. It does not constitute advice nor should it be relied upon in making decisions regarding the UK Emissions Trading Scheme (UK ETS). All content within this communication is provided for informational purposes only and has been prepared in accordance with the principle of fair, clear and not misleading information as required by COBS 4.2. Readers should seek their own professional advice when planning to undertake transactions in the UK ETS. No representation or warranty is given as to the accuracy or completeness of the information provided. The publisher accepts no liability for any loss arising from the use of or reliance on the information contained in this newsletter.
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