Posted By Global Banking and Finance Review
Posted on January 28, 2025
By Susanna Twidale
LONDON (Reuters) - Benchmark prices in Britain's Emissions Trading System closed around 13.5% higher on Tuesday after a newspaper reported that Britain is seeking talks on linking its carbon market with that of the European Union.
Britain quit Europe’s ETS at the end of 2020 as part of its exit from the EU and launched its own carbon market in 2021.
The Financial Times, in a report on Tuesday, said sources said UK has requested that ETS linkage and carbon border taxes are included on the agenda for talks with the EU in spring.
The benchmark UK Allowance contract closed at 40.16 pounds ($49.91)/metric ton, up from 35.39 pounds the previous day, after touching an intra-day high of 40.94 pounds/ton on Tuesday, its highest level since November 2024.
Both the EU and UK ETS charge power plants and other industrial entities for each tonne of carbon dioxide they emit as part of wider efforts to cut emissions and reach climate targets.
Currently, prices in the UK scheme are lower than in the EU, where the equivalent benchmark contract trades around 80 euros ($83.40)/ton.
“Given the significant discount of UKAs compared to EUAs, ETS linkage would imply price convergence between the two systems,” said ICIS analyst Lewis Unstead.
“This prospect has driven bullish sentiment for UKAs, as participants begin to price in a higher probability of a linkage scenario,” he said.
A spokesman for Britain’s Department for Energy Security and Net Zero said the UK and EU agreed to consider linking the schemes under their post-Brexit Trade and Cooperation Agreement.
They did not comment on whether any talks are scheduled.
($1 = 0.8046 pounds)
($1 = 0.9592 euros)
(Reporting By Susanna Twidale; Editing by Bill Berkrot)
