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The price is right? UK ETS market opens

Laura Woolsey Analyst

In issue 225 of the 'Chart of the week', we considered the potential scenarios for UK carbon prices as we transitioned to the new UK Emissions Trading System (ETS), noting the role of market tools, policy, and recent EU ETS pricing trends in determining UK prices. Following the launch of the first UK Allowance (UKA) auction this week, we take a look at the initial carbon prices reported. The first auction for the UK Emissions Trading Scheme (UK ETS) was held on 19 May 2021, between 12:00-14:00, hosted by the Intercontinental Exchange (ICE). The minimum overall price for total UK carbon that could be attained yesterday was £40/t. This price being 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 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 a price of £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). 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. ...

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