Carbon Prices Jump 7% in May as EU and UK Eye Market Alignment

EU carbon prices climbed sharply in May, gaining 7% amid fresh momentum from policy updates and energy market swings. The boost was driven by speculation around a potential merger of the EU and UK Emissions Trading Systems (ETS), the introduction of new ETS2 futures, and rising volatility in global gas markets.

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After a quiet start to the month, prices spiked mid-May. The benchmark December 2025 EU Allowance (EUA) contract rose from $76.2/t (€67.0/t) to a peak of $83.5/t (€73.4/t), settling slightly lower by month-end at $80.71/t (€70.94/t).

A major driver behind the rally was the 19 May announcement that the EU and UK are exploring a post-Brexit reconnection of their carbon trading systems. If realised, the deal could streamline cross-border trade, ease CBAM (Carbon Border Adjustment Mechanism) compliance, and harmonise climate regulations across key industries like energy and transport.

The UK carbon market responded swiftly. The December 2025 UKA contract rose from $70.88/t (£52.43/t) to $74.39/t (£55.00/t) in just one day before cooling off. Analysts at S&P Global project that UK prices will likely stabilise near $67/t (£50/t) in the third quarter.

Market sentiment was also shaped by international trade tensions. On 20 May, EUAs touched $83.33/t (€73.18/t), but dipped shortly after following U.S. trade threats—including former President Donald Trump's proposal of a 50% tariff on EU imports.

Meanwhile, on 6 May, ICE launched futures contracts for the second phase of the EU ETS—ETS2—which will expand coverage to include emissions from road transport and buildings from 2027. The first trades landed at $83.67/t (€73.57/t), with broader participation expected once trading opens on the European Energy Exchange in July.

This mix of policy movement and market innovation underscores how tightly interlinked carbon pricing has become with global regulation and energy strategy. As these systems evolve, they continue to shape not just emissions targets—but the market mechanisms that make them viable.