UK Allowance (UKA) prices rallied sharply on Wednesday, October 7, after a POLITICO report that the UK and the EU have reached an agreement to link their emissions trading systems, citing four people briefed on the talks.
The UKA Dec-26 contract traded in a narrow GBP 59.5–60.5 range all morning. After 13:00 GMT it climbed more than 5% from its session low to reach GBP 62.90 at 14:15 GMT. That was 4.0% above Tuesday’s settlement of GBP 60.46, on 3,101 lots, and the highest level since late July.
The deal is expected to be unveiled at the upcoming UK–EU summit. Internal discussions point to November 20, but the date has not been formally announced. Earlier reports had pointed to progress in negotiations and a possible November summit. POLITICO now reports that negotiations on the ETS file have concluded and that the two sides have reached agreement.
Why linkage matters
ETS linkage is the first of the three files committed to at last year’s summit to conclude, and officials have long seen it as the most straightforward. The report materially reduces uncertainty around the linkage negotiations.
Linkage would allow UKAs and EUAs to be used interchangeably for compliance and underpin reciprocal exemptions from each side’s CBAM, which is strongly supported by UK industry. The price impact is naturally concentrated in UKAs, as linkage would pull the smaller UK market toward the much larger and higher-priced EU ETS rather than materially alter EUA fundamentals.
A narrowing spread
The rally also narrowed the UKA–EUA spread. At Wednesday’s high, UKA Dec-26 was worth roughly EUR 74.2, against the EUA Dec-26 settlement of EUR 84.78 on Tuesday. That narrowed the EUA–UKA spread to around EUR 10.6, from EUR 13.5 at Tuesday’s close.
For UK power generators, adding the GBP 18 Carbon Price Support puts the combined carbon cost above the equivalent EUA price. The support is due to be removed from April 2028.
The package risk
Both sides have said the three agreements come as a package and will not proceed individually. Talks on the agri-food (SPS) deal are reportedly progressing well. The youth mobility scheme remains unresolved, with disagreements over tuition fees for EU students and a UK cap on visa numbers. A stalled youth mobility file could therefore hold back the wider package even though agreement on the ETS linkage file has reportedly been reached.
UKAs have rallied on linkage headlines repeatedly over the past year, most recently into the July summit date, before giving the gains back. A “sell the fact” reaction around the formal announcement cannot be ruled out.
Otherwise, fresh buying could extend the move. A delayed summit or a setback in the package talks could instead trigger a sharp unwind, as in February, when UKA Dec-26 fell almost 25% in two sessions on political uncertainty.
