9th December 2025
- UK carbon price falls by 3.7%
- EU carbon prices expected to increase in Q1 & Q2 2026
- The real cost of industrial offshoring
- UK authority announce extension of UK ETS
UK carbon price falls by 3.7%
UK December 2025 carbon allowances closed last week at £56.10, a fall of 3.7% from the previous Friday. The announcement by the UK government to adopt the EU’s free allocation benchmarks may increase volume in the market and may have contributed to the price fall here, together with profit taking across Europe. Weather forecasts for December suggest above average temperatures for the month further weakening gas demand and pushing prices to a 20-month low. This week prices are expected to remain rangebound; the UK will auction 2,074,500 allowances on the 10th December. Monday saw little movement on price as the market waits for the Dec 25 option contracts to expire on Wednesday. The spread between UKA-EUA settled at €18.
EU carbon prices expected to increase in Q1 & Q2 2026
Energy market analysts expect EU carbon prices to increase towards €100 in early 2026 as the market tightens from an allowance supply cut of 16% and the power sector almost exhausting fuel switching. However, this momentum may slow as the EU review the scheme in Q3. Gas prices are expected to weaken further due to reduced demand and increased supply from the USA and Qatar, although carbon appears to be decoupling from gas. Power prices from next year may be further influenced by carbon costs which could represent up to 40% of an average efficiency gas fired plant.
The real cost of industrial offshoring
The recent announcement by ExxonMobil to close its Mossmorran chemical plant is another example of how the UK and Europe celebrate environmental progress through industrial decarbonisation with policies to create incentives to move production abroad rather than transform it. The Centre for Energy Policy suggests displacement of domestic production results in three outcomes; the reduction of local skilled jobs; loss to domestic growth and an increased reliance on imports; and a net increase in global CO2 emissions. The loss of these industries represents a shift to jurisdictions with lower regulatory costs and less robust environmental standards. The outcome is the same or even higher emissions outside Europe, often from production facilities using older, less efficient technology.
UK authority announce extension of UK ETS
Last week the UK ETS authority announced the extension of the scheme beyond 2030 giving confidence to market participants. It also confirmed that no supply-balancing mechanism would be introduced, as the current cost containment mechanism and auction reserve price set at £28 in 2026 is sufficient to manage price risk. However, as the market becomes tighter towards 2030 the current cost containment mechanism currently set at £124.96 may not be fit for purpose. The UK also announced they would adopt the EU’s free allocation benchmarks from 2028 which further suggests the focus remains on a link with the EU ETS scheme. Linking the schemes would mean EU and UK business could be exempted from each other’s carbon border tariffs set to commence on the 1st January 2026 in the EU. Last week the spread between UK and EU carbon remained at €17.
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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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