UK carbon market's ceiling price lower than EU's current carbon price

London (Quantum Commodity Intelliigence) - Auctions for the UK's cap and trade emissions scheme starts this week with a trigger price for cooling the market that is lower than the current EU carbon price.

Billed as more responsive than the EU's market stability reserve, the UK's cost containment mechanism (CCM) will kick start a series of interventions to bring carbon allowance prices down if they remain above £44.74 for three consecutive months.

EU December carbon allowances surged on Friday to a fresh all-time high over €55/mt, or more than £47.34 at current exchange rates.  

If the CCM price is triggered, the UK ETS authority will meet to decide whether to take action, and if the body cannot agree a decision, the Treasury steps in.

Interventions to cool prices include redistributing allowances between the current year's auctions, bringing forward future allowances from future years to current years, drawing allowances from the market stability mechanism account, and auctioning up to 25% of the remaining allowances in the New Entrants Scheme.

The UK is handing out 39.1 million free allowances this year to 461 installations in its inaugural year, which is around 2.9 million fewer these same companies and business received last year when they were regulated by the EU cap-and trade market.

The first auction of UK allowances will be held on the ICE exchange on Wednesday, 19 May, with a minimum price of £22/mt (€25.54/mt at current exchange rates).