INSIGHT: UK carbon trading system launch

LONDON (ICIS)–The UK launches its own carbon emissions trading system (ETS) on 19 May with the prospect of higher prices for traded allowances as the country seeks to roll out ambitious plans to tackle climate change.

The first UK ETS auction is of 6m allowances from a total of 38m to be auctioned before the year end. The ICE (Intercontinental exchange) launches UK Allowance futures contracts on the same date.

A new plan for reduced carbon emissions by the end of this decade was announced in December 2020 and puts further pressure on large energy users and CO2 emitters to control greenhouse gas pollution. The proposal drastically reduces allocations from 2023 as the emissions cap decreases.

UK ETS cap trajectories(CCC: UK Committee on Climate Change)
Source: ICIS

“The UK ETS will be the world’s first net zero aligned emissions trading system, demonstrating the UK’s global leadership on climate change action,” UK Chemical Industries Association (CIA) Chief Executive, Steve Elliott, said.

“The chemical industry welcomes the government’s ambition and is committed to supporting the nation’s net zero goal, both by decarbonising our own operations and by providing the advanced materials essential for clean growth,” Elliott told ICIS.

“We now need government to match its ambitious commitment with equally ambitious support for cleaner UK industries, to help us to remain internationally competitive whilst we invest in the clean technologies of the future,” .

Alignment with the EU ETS is expected at some stage and ICIS’ extensive carbon market analysis suggests that UK allowances will trade at a slight premium to EUAs. UKA prices could rise to up to £52 (€60) over the first half of this decade, increasing to up to £69 (€80) by 2030. Prices could plunge, however, if the cap is not decreased in the next two years, and if a link to the EU ETS is not made.

ICIS has launched a new section on the UK ETS on its Carbon Analytics portal. ICIS Carbon Analytics covers all the major carbon markets worldwide: the EU ETS, Western Climate Initiative (California, Quebec, Ontario) and the Regional Greenhouse Gas Initiative (RGGI) in the northeast of the US.