Potential EUA-UKA Merger: Track Price Movements in Real Time with FIS Live

UK Allowances (UKAs) Dec 25 contract experienced an approximately 15% surge on 28 January 2025, following reports that UK Prime Minister Keir Starmer plans to pursue the relinking of the UK and EU Emissions Trading Schemes (ETS). Since 2022, UK carbon permits have traded at a discount to their EU counterparts (EUAs). Re-establishing the link between the two systems is expected to align prices, enhance market stability, and simplify the administrative complexities associated with the Carbon Border Adjustment Mechanism (CBAM), an EU tax on carbon-intensive imports such as steel, cement, and fertilisers.?

Currently, the separation of the UK and EU ETS offers policymakers greater flexibility in designing their respective schemes, though both cover broadly similar sectors. However, the EU CBAM diminishes most competitive advantages UK exporters may gain from lower UK ETS prices, as carbon costs will be effectively equalised at the border. Which makes the flexibility in coverage for the purpose of competitive advantage less impactful.?

A significant structural difference between the two systems lies in the EU ETS's Market Stability Reserve (MSR), which manages surplus allowances to stabilise prices. The UK ETS lacks an equivalent mechanism, resulting in persistent oversupply and suppressed UKA prices. To address this and facilitate compatibility with the EU ETS, the UK government is considering implementing an absolute emissions cap called the Supply Adjustment Mechanism (SAM). The introduction of the SAM is expected to tighten supply and support UKA price growth. Market participants should closely monitor these developments, as fluctuations in UKA prices could significantly affect carbon cost exposures and hedging strategies.?

FIS Live has real-time, intra-day data in the carbon credit market offering users the opportunity to keep up with price movements. Additionally, FIS Live features a shipping carbon calculator designed to simplify the process of estimating future carbon offset costs. By inputting key details such as metric tons (mt), fuel type, timeframe, voyage type, and the phase-in percentage factor, the tool quickly calculates both the total EUAs required and the corresponding offset price, based on current EUA futures prices.? ? Try FIS Live now at: www.fis-live.com?

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