UK confirms position as leader in carbon markets

Electricty pylons
Published on Wednesday, 21 November 2012 12:53
Posted by Vicki Mitchem

The UK confirmed its global reputation as a centre for traded carbon markets today, as the UK's first auction for Phase III allowances of the EU Emissions Trading Scheme (EU ETS) took place in the City of London.

London is now the hub for 90% of EU carbon trading and 80% of global trading - activity which generates £90bn in revenues for the Exchequer.

Minister of State Greg Barker said:

"The UK is really leading the way in carbon auctioning, and today's sale reaffirms London's position as a global hub for the market.

"Not only does this help incentivise significant emission reductions and behaviour change amongst businesses, but it also generates millions of pounds in revenue each year for the Treasury, at little or no cost to the taxpayer. This is a win-win, which makes both environmental and economic sense".

David Peniket, President and COO, ICE Futures Europe said:

"Today's successful auction of Phase III allowances on the ICE auction platform on behalf of the UK government represents a new milestone in the development of European emissions trading.

"ICE is committed to continuing to help deliver liquidity and transparent price discovery for this important market".

This first UK auction of Phase III allowances held today was hosted by ICE Futures Europe, the Exchange platform, which was appointed in April 2012 to host the UK auctions.

The auction sold 6.5 million EUAs with an Auction Clearing Price of €6.62, raising approximately 34 million pounds for UKPLC.

During Phase II of the EU ETS (ending this year), the UK held 30 successful competitive auctions, selling almost 123 million EU allowances (EUAs) and raising approximately £1.3 billion. Each EUA represents an entitlement to emit one tonne of carbon dioxide equivalent gas.

During Phase III (2013-2020), the UK will sell approximately this number of allowances every year.

Emissions trading establishes the price of greenhouse gas emissions, which allows the market to determine the most economically efficient method for businesses to reduce their emissions.

Auctioning provides the most efficient way of distributing allowances to the market and reinforces the 'polluters pay' principle which encourages businesses to factor in the cost of carbon into the decision they make.

The EU ETS is central to the Government's policy for reducing emissions; around 50% of the emissions reductions that the UK has achieved to date have been incentivised by the scheme.

The UK has been a leader in the development of carbon auctioning, being one of the first countries to auction in phase II and one of the Member States to sell the most allowances during that phase. This latest auction reaffirms London's position as the leader in this expanding market.

The UK is also taking steps towards introducing a stronger Carbon Price Floor for the generation sector. This will ensure that proper incentives are put in place within the market to support the low-carbon economy.

$142bn (£87bn) - World Bank (2011) State and Trends of the carbon market

Source: ©Decc

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