Home Markets Carbon price surge triggers UK ‘cost containment’ market mechanism

Carbon price surge triggers UK ‘cost containment’ market mechanism

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A sustained rally that has brought the price of carbon allowances to new highs has triggered a market mechanism that could see the UK government intervening to bring down prices.

The global energy crunch and renewed focus on emissions after the UN climate summit in Glasgow has fuelled a surge in the price of allowances issued under the both the EU and UK emissions trading systems.

Under the systems, governments set a cap on the maximum level of emissions and create permits, or allowances, for each unit of emissions issued under the cap. Companies that are heavy polluters are obliged to buy credits granting them permission to emit one tonne of carbon.

A gas shortage has led some energy producers, which are regulated under the systems, to switch over to cheaper but dirtier coal. Since coal is more carbon intensive than gas, demand for allowances has increased.

In the UK, credits have remained at elevated prices for several months and came near a…

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