On 16 July, UKA Dec-25 rose nearly 5% to GBP 52.70 in early afternoon trading, following a regulatory update on UK-EU ETS linkage talks. The European Commission published a draft Council Recommendation authorizing the start of negotiations with the UK. While the draft still requires formal adoption by the Council before talks can begin, the move marks progress since the 19 May joint statement, viewed as slightly bullish by UKA market participants, as reflected in the price reaction.
With this recommendation, the European Commission invites the Council of the European Union to authorize the opening of negotiations with the UK on two agreements: one to establish a common sanitary and phytosanitary area, and another to link their greenhouse gas emissions trading systems. It also proposes appointing the Commission as the Union’s negotiator, issuing negotiation directives, and designating the committees to be consulted during the talks.
The draft Recommendation reiterates the key points from the 19 May Common Understanding on linking the two ETSs, including the establishment of a Common Sanitary and Phytosanitary Area and the alignment of the linkage with both parties’ sustainability objectives. It also highlights that linking the two systems would promote a level playing field between the EU and the UK and help reduce the risk of carbon leakage.
It further clarifies the CBAM exemption under the ‘Level Playing Field Benefits’ section, stating: “As a result, once the agreement is in force, the CBAM regulation would not apply to goods originating in the United Kingdom. Equally, the United Kingdom would not apply its own CBAM to goods originating in the Union.”
On other key aspects, the draft reiterates the main elements of the proposed linking agreement:
Today’s EU update reconfirms the message shared at the 3 June UK-EU ETS linking information meeting hosted by DESNZ: both sides are progressing, but a wide range of policies still need to be aligned before linking can occur, and negotiations are expected to take several years to conclude.
Investment funds’ net-long positions in UKAs remain a key market indicator, along with developments in the linking process. As of 11 July, funds held 16.6 Mt in net length, down 0.1 Mt from the previous week.
For ClearBlue's outlook and potential linkage scenarios, please refer to our latest UK ETS Q2 Supply and Demand Report, accessible to our Market Intelligence clients via Vantage, our carbon intelligence platform. Contact us for subscription information.