UK carbon allowances fall sharply beneath EU ETS

Since 2021, UK emitters are no longer covered by the EU ETS and instead trade a specific UK Allowance (UKA), plus pay the carbon price support (CPS), set at £18/t. Historically, the UKA has traded at a premium to EU ETS however a continued decline in UK power demand and industrial output has seen the UKA trade at a discount of €37/t to the European benchmark. Even with the carbon price support top-up, this places UK carbon costs structurally below European, reducing the relative cost of power generation in the UK and supporting power exports to the continent. Whilst the UK has historically been a net importer, 2022 saw GB becoming a net power exporter following high wind generation and low French nuclear output.