The first auction for the UK Emissions Trading Scheme (UK ETS) was held last week on 19 May 2021, between 12:00-14:00, hosted by the Intercontinental Exchange (ICE). The auction cleared at £43.99/t, providing a total carbon price of £61.99/t.
Following the launch of the first UK Allowance (UKA) auction, Laura Woolsey at Cornwall Insight looks at the initial carbon prices reported.
“The minimum overall price for total UK carbon that could be attained yesterday was £40/t. The price is made up of the Carbon Price Support (UK CPS), set at £18/t, combined with the Auction Reserve Price (ARP) of £22/t set by the government to provide a floor for allowance prices in the transition from EU ETS. On 19 May, the first auction for the UK ETS cleared at £43.99/t, selling all 6,052,000 allowances available for purchase. This far exceeded the £22/t floor and, together with the CPS, provided a total carbon price of around £61.99/t.
“The auction clearing price was broadly comparable to the EU ETS carbon price on the day of €50.86/t (equivalent to ~£43.74/t). While the scheme is standalone and not directly linked to the EU scheme, in the short-term, there is likely to be some correlation due to the purposeful design of the UK ETS being very close to the EU scheme.
“EU ETS prices have risen considerably since November 2020, but have fallen by about 10% this week, which is thought to be partly driven by the launch of the UK scheme and selling of allowances by UK traders.
“Going forwards, the UK has initially set its emissions cap 5% lower than its cap under the EU ETS, which could potentially continue to support prices as we shift to the standalone UK market. The UK market is also expected to be volatile in its early months as it establishes itself and participants better understand market fundamentals.
“It’s still early days for the UK ETS scheme hence the UK market is potentially expected to be more volatile because of its relative size to EU ETS.”
About the Cornwall Insight Group
Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.
