First auction held for UK emissions trading system

The UK’s post-Brexit emissions trading system (ETS) has now launched, with the price per tonne of carbon exceeding the EU regime which Britain recently quit.

The UK ETS, which was set up by the government following Britain’s departure from the EU’s established trading system, had its first day of trading on Wednesday (19 May).

The permits were sold at a clearing price of £43.99 per tonne in the first government sale, according to the exchange ICE, which hosted the auction.

The price of UK permits then climbed to just over £50 per tonne before falling back to around £45 later in the day.

The trading price in the EU ETS this morning was €52.40 per tonne of carbon, which is equivalent to around £45.25.

The ETS applies to all factories and power plants with a total rated thermal input of 20MW or more.

It works on the basis that companies participating receive free allowances and/or buy emission allowances at auction or on the secondary market which they can trade with other participants as needed.

Commenting on the clearing price for the initial auction of the UK ETS, Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, said: “The first UK emissions auction clearing close to EU prices will bring a sigh of relief for industry and for policy makers. A smaller market and uncertainty about interventions to curb price spikes brought pre-auction worry that the permit prices would soar above those on the mainland and be volatile – potentially damaging the efficacy of carbon trading as a means of cutting carbon.

“Clearing this first hurdle means attention can be turned to the future, taking decisive action to end free permits that undermine the whole purpose of carbon pricing, setting a net zero-aligned trajectory and thoroughly assessing a link with the EU scheme. The government has made it clear that it wants carbon pricing to be part of the journey to net zero, this is the opportunity to make that happen.”

Louis Burford, head of solution sales and optimisation at Centrica Business Solutions, said: “Today’s launch of the UK ETS market marks an important step in the UK’s net-zero journey, but for many firms it’s going to take a big leap of faith. Businesses will be debating how much of their requirement they should buy now and how much they should defer to a later date.

“One thing that’s clear is that carbon prices are growing, and it’s a cost that impacts almost all businesses. For those looking to reduce their carbon emissions or become net-zero, there are technologies and services that can help. By taking the cost of carbon off the books altogether, firms can avoid the market and hedging bets on how high carbon prices will go.”