22nd December 2025
- Merry Christmas to all our readers
- UK carbon hits 32 month high
- Linking of UK/EU markets to conclude early 2026
- Coal demand continues to rise
Merry Christmas to all our readers
As we approach the end of year, 2026 is expected to be as unpredictable as 2025. How will CBAM influence UK markets? Will the UK become the home for diverted products as embedded carbon will need to be paid for at EU borders? Will the EU-UK carbon markets merge with price convergence? As we have seen prices rise through 2025, compliant carbon will continue to have a growing influence on the energy markets. In 2026 our report will keep you updated in this volatile market.
UK carbon hits 32 month high
As we come to the end of the year UK carbon hit £65.50 last week recording a 12% week on week rise and an 80% price increase during 2025. Last week’s increase was influenced by ongoing discussions for linking UK-EU carbon schemes which is expected to be agreed by mid-2026. The spread between the two schemes also shrunk by €8 to €12.26 on the news. Gas prices have also begun to stabilise as LNG begins to find higher priced markets and the prospect for colder weather in the coming week may push up gas and carbon in a low liquidity period, although industrial demand will decrease due to the Christmas shutdown.
Linking of UK/EU markets to conclude early 2026
Following last week’s announcement that the Erasmus scheme is to commence once again in 2027, the EU and UK have moved to talks on participation in the internal electricity markets, together with linking of the carbon markets which is expected to be concluded at an EU-UK summit to be held next spring in Brussels. An agreement would provide clarity for market reforms set to begin in Q3 2026. The UK is currently holding back changes to its ETS scheme pending talks on re-joining the larger EU market with more liquidity. Progress for electricity trading is of significant interest as the EU CBAM will commence on the 1st January 2026 in which electricity imports to the EU will be subject to CBAM tariffs.
Coal demand continues to rise
Coal demand reaches new annual record as US output rises, however the International Energy Agency (IEA) forecasts a decline in years to 2030. Despite many uncertainties demand for coal in China is expected to be flat this year and then to decline slowly over the next few years highlighting the difficulties of the world quitting the dirty fuel despite a surge in clean energy sources. Political support for coal in the US has contributed to higher output from coal-fired power plants there, while low wind speeds in Europe also slowed down the continent’s shift away from the fuel. Rising global energy needs meant the world was on course to consume 8.85bn tonnes of coal this year, up 0.5 per cent compared to 2024, according to the latest report. The IEA forecasts that global coal demand is now plateauing and will be about 3 per cent lower in 2030 compared to 2025 levels.
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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.
Sturgeon Ventures LLP (FRN: 452811) is authorised and regulated by the Financial Conduct Authority.
