6th January 2026
- UKA price consolidation
- EU’s carbon border adjustment mechanism (CBAM) begins
- Energy transition 2026
- UK fuel industry looks for increased free allocation
UKA price consolidation
Following the rapid increase in the price of UKAs during December and closing on Friday at £68.70, Monday saw a fall of 2.3% to close the day at £67.14. The price fall may be due to forecast warmer weather in the coming week together with some consolidation following the 86% price rise during 2025. A clearer price direction may emerge once 2026 auctions begin. EUA auctions commence on the 7th Jan selling 5.3m EUA this week, with UKA auctions commencing on the 14th January selling 2.074m allowances.
EU’s carbon border adjustment mechanism begins
The biggest shake-up of green trade rules for decades came into force on the 1st of January, as companies selling high-carbon goods into the EU will have to prove they comply with low-carbon regulations. UK goods including electricity exports will be subject to CBAM which aims to create a level playing field between the EU and overseas competitors. Cheaper Chinese steel could be dumped at low prices into the UK. Under the EU rules, exporters can buy certificates to cover the carbon emissions generated in the production of their goods. Imports of cement to the UK have tripled, from about 10% of the market a decade ago to about a third currently. A UK CBAM expected in January 2027 should level the carbon cost. Part of the CBAM includes reduced free allocation which may increase production costs.
Energy transition 2026
The global push to tackle climate change has slowed. Ten years on from the Paris Agreement no major G7 country appears on track to meet their 2030 emissions reduction targets. The goals announced for emissions reduction by 2035 lack ambition, suggesting too many governments are ‘kicking the can down the road’. It is widely acknowledged that the world will not achieve net-zero emissions by 2050. The Wood Mackenzie annual Energy Transition Outlook reveals the world is on a 2.6°C pathway. Rising population, economic growth and societal aspirations, particularly in developing countries, are driving energy demand higher. Wood Mackenzie envisage an ‘energy evolution’, in which fossil fuels remain the bedrock of supply for decades to come.
UK fuel industry looks for increased free allocation
UK downstream association Fuel Industries UK has urged the government to reallocate unused free CO2 allowances from two recently closed refineries to help remaining plants cope with rising emissions compliance costs. The UK has lost one-third of its refineries in the past year and without urgent action, the remaining sites face the same pressures of higher carbon and energy costs than competitors abroad, and growing uncertainty over long-term policy. The group wants allowances granted under the UK Emissions Trading Scheme (ETS) for the Grangemouth and Lindsey refineries to be redistributed, following the closures in April and August. The association warned the sector may not survive without temporary support, citing carbon costs that exceed those faced by overseas competitors until the UK’s carbon border adjustment mechanism (CBAM) takes effect in 2027.
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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.
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