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The UK’s thermal generators have dodged the full impact of rising emissions costs through the European carbon market, because foreign exchange rates have wiped out over half of the market’s 2015 gains.
The cost of carbon emissions through the EU’s euro-denominated emissions trading system (ETS) has been steadily rising this year following the European Commission’s agreement to reform the flagging market.
But at the same time the EU’s economic woes have caused the region’s currency to plummet, allowing the UK’s thermal generators to side-step the brunt of this rising cost under the protection of the stronger pound.
Price data from market specialists at Icis show that the average price of carbon emissions rose from €7.05 per metric tonne of carbon emitted to levels currently around €8.35/mt.
But these 18.5 per cent gains translate to gains of just 10 per cent when paid in sterling. In January the average carbon price in pounds was £5.45/mt and is now only slightly stronger at around £6/mt, Icis data shows.
However, any competitive advantage felt by UK generators by remaining relatively insulated from the strengthening ETS is more than offset by the UK’s government carbon price support tax, Icis’ head of power Zoe Double told Utility Week.
“In January, the average ETS carbon cost was £5.45/tCO2e, compared with £5.75/tCO2e [in August]. Compare that with the £18.00/tCO2e that UK generators are paying on top of the ETS, and these gains are pretty insignificant,” she said.
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