UPDATED: BEIS promises decision on action after close on 14 December as carbon price rises above cost-containment ‘trigger’

UPDATE: The UK ETS Authority has decided not to intervene in the market although prices have risen to a level where action – a ‘cost containment mechanism (CCM) – is considered.
The Authority said the decision is “based on the specific circumstances at the current time and does not prejudice future decisions”. It promised to look again at the market if the CCM was again breached.
It said it “has confidence that this decision will uphold the objectives of the UK ETS as a market-based approach to reducing emissions and incentivising participants to find the most cost-effective solutions to decarbonise.”
The Authority will continue with a planned release of around 25.8 million allowances to the market. which will be auctioned ahead of the 2021 compliance deadline of 30 April 2022. Around 80 million allowances will be auctioned across 2022.
In addition to this, free allocation for 2022, amounting to around 39 million allowances for stationary installation operators and around 4 million allowances for aircraft operators, will be issued by 28 February 2022.

BEIS has promised an announcement on action to address rising carbon costs in the UK’s new carbon emissions trading scheme (UKETS). The market will know what action will be taken after trading hours on 14 December.
Since Brexit, UK companies have participated in the UKETS instead of its EU counterpart. The cost of carbon emissions in the UKETS has risen sharply – from a three-monthly average of £46/t in August to £60.98 in December. That means that for December a ‘Cost Containment Mechanism’ (CCM) will be activated.
It is not yet clear what action the government will take – it can decide not to take any action. The CCM requires a meeting of the UKETS  Authority to consider whether and what intervention to make. If there is no agreement on action, the final decision is taken by HM Treasury.
Any intervention will be to “address sustained price movements that do not correspond to market fundamentals” and it can include:
• redistributing allowances between the current year’s auctions
• bringing allowances into auctions from the flexible share
• increasing the volume of allowances to be auctioned, which may be by bringing forward auctioned allowances from future years, drawing them from the market stability mechanism account, auctioning up to 25% of the allowances in the New Entrants Reserve, or auctioning allowances not allocated in previous years.
The CCM was triggered because the carbon price exceeded a so-called ‘trigger price – £52.88, which is twice times the average price in a preceding two-year ‘reference period’ – for three consecutive months (and based on a three-month average). The price was well above the trigger – £58.36 in September, £60.98 in October and £60.50 in November.
It is possible the trigger price will be exceeded again in January. The trigger price is £56.58 and average prices in October 2021 (£60.98) and November (£60.50) were above the trigger. If the average monthly price in December 2021 remains above £56.58 the CCM will be triggered for January 2022.
In February it will not be triggered, but not because of price falls. Changed rules take effect in February – from then and for the rest of 2022 the CCM trigger price is 2.5 times the average price in the reference period. The CCM was given lower price and time triggers in the first two years, “to ensure the intervention can be more agile in early years whilst the UK ETS matures”.