For the second time, the UK’s Emissions Trading Scheme (ETS) Authority has decided not to provide extra supply to the scheme although a ‘cost containment mechanism’ was triggered (CCM) at the start of January.
The CCM enables the UK ETS Authority to intervene, if deemed appropriate, if prices are elevated for a sustained period. It was triggered for January 2022 because the average price in each of October, November and December was above the January trigger level of £56.58.
Announcing that it would not redistribute or release additional supply into the scheme’s market at this time, the Authority said it “recognises the sensitivity of the issues under consideration in the context of concern about energy prices and determination to tackle climate change”. The decision was “finely balanced” . The decision not to intervene, like a similar decision in December, “is aimed at upholding 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”.
It added, “after careful consideration, the Authority judged that, on balance, prices were responding to fundamental market drivers and therefore concluded that intervention was not warranted on this occasion.”
There is a planned schedule of releases and the Authority said it will continue to release that supply of allowances to the market ahead of the 2021 compliance deadline of 30 April 2022. Around 81 million allowances will be auctioned across 2022 – including just under 26 million through fortnightly auctions before the end of April.
In addition to this, free allocation for 2022, amounting to around 38 million allowances for stationary installation operators and around 4 million allowances for aircraft operators, will be issued by 28 February 2022. Around 42 million allowances were issued to scheme participants in 2021.
The Authority also said it would “continue to explore ways to increase liquidity in the scheme”.