UK's first carbon auction clears at GBP43.99/mt

London — The UK's first sale of carbon allowances under its Emissions Trading System cleared at GBP43.99/mt ($62.26/mt) May 19, according to auction host ICE Futures Europe.

The sale of 6.052 million allowances marked the start of primary supply under the UK ETS, which replaces the EU ETS for UK-based companies after the country left the EU scheme on December 31, 2020.

Price volatility in the EU carbon market increased sharply in the immediate run-up to the UK's inaugural carbon auction and fell further on the day of the sale.

EU Allowance futures contracts for December 2021 delivery on the ICE Futures Europe exchange fell as low as Eur48.61/mt May 19, from an all-time closing high of Eur56.65/mt May 14.

Some participants had warned that the operators of UK-based power plants and factories could sell EU Allowances they had used to hedge their carbon exposure, once they could acquire UKAs, putting EU carbon prices under downward pressure.

The UK plans a series of fortnightly carbon auctions in 2021, with the total volume set at 83 million mt of CO2 equivalent.

Trading also got under way May 19 on UK Allowance futures contracts on ICE.

UKA futures for December 2021 delivery traded as high as GBP50.23/mt in early deals May 19, but fell sharply through the day to as low as GBP45.25/mt by mid-afternoon, according to ICE data.

Trading may be patchy on the UK market in the short-term because the May 19 auction represents the first physical supply of allowances to the market, and participants are still awaiting the flow of free UKAs for 2021 to industrial sectors – still over a week away.

The UK government plans to allocate a total of 39.1 million carbon allowances for free to industrial sectors in 2021, and it expects to make these available in companies' holding accounts in the UK emissions registry by May 28, it said May 18.