8th October 2025
- UK carbon continues to track EU prices
- Strict climate change legislation holding back economy
- UK & EU working together on carbon border tax
- Preliminary economic impact of linking carbon schemes
- Renewable generation overtakes coal
UK carbon continues to track EU prices
UK carbon prices continue to track EU carbon markets which hit a seven-month high last week closing at €79. The UK price ended the week at £57.02, up 5%. Prices may be on the rise due to the anticipated tightening of supply for 2026. The correlation between gas and carbon appears to be weakening as fuel switching becomes a less dominant price driver. Instead carbon markets are increasing influenced by factors such as scarcity, political policy and greater financial participation, which has led to an increase in long positions. The early part of this week has seen some profit taking causing a slight weakening in prices.
Strict climate change legislation holding back economy
The Conservatives have pledged to scrap the current climate change legislation. In 2019 the Theresa May government updated the legally binding targets to reach net zero by 2050. Political consensus is now changing with the Conservatives saying net zero by 2050 is impossible for the UK to meet and will hold back economic growth which the country needs to protect the environment. However, any change would cause issues in The European Union at a time when the UK is looking to forge closer links. The UK currently has the highest electricity costs in the EU for industrial use.
UK & EU working together on carbon border tax
The EU will implement its carbon border adjustment mechanism (CBAM) in January 2026, whilst the UK will implement its CBAM a year later. This could potentially cause issues for British manufacturing due to product being diverted from the EU, together with increased costs when exporting to the EU. Ministers have been seeking a temporary exemption from the EU tax until the UK and EU align carbon schemes. It’s understood that a mechanism is being developed that would shield British exporters from the levy’s impact.
Preliminary economic impact of linking carbon schemes
The government have modelled a potential linking of the UK and EU emissions trading schemes which could provide a long-term gain of 0.1% GDP. However, the analysis is sensitive to how a CBAM may develop in Europe, together with general EU decarbonisation targets shared across a combined market. The modelling assumes price alignment between the EU and the UK and decarbonisation targets are shared allowing carbon reduction to take place in the most cost-effective place.
Renewable generation overtakes coal
Renewable power has become the world’s leading source of electricity according to the think tank Ember. Electricity demand continues to grow with solar and wind power meeting 100% of this extra demand. Developing countries are leading the change albeit from a lower starting point, whilst the transition has slowed in developed countries due to rising power demand and the significant away from coal generation due to environmental reasons. China continues to have an overwhelming dominance in the clean tech industries.
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.
Sturgeon Ventures LLP (FRN: 452811) is authorised and regulated by the Financial Conduct Authority.
