Today, the UK held its first auction of emission allowances under the UK Emissions Trading Scheme (ETS), which officially started in January of this year. The clearing price was £43.99, broadly in line with EU Allowance (EUA) pricing at the time, although EUAs have fallen by 8% today to below €50. This is a welcome result for UK industry, that is still coming to terms with the impact of the pandemic and adjusting to new trading relationships.
Steve Elliott, Chief Executive of the Chemical Industries Association, commented on the auction outcome:
“We were relieved to see the initial auction for UK carbon allowances clear at a price no higher than in the EU emissions trading system. The lower than expected price provides some relief to UK industry which has seen a year of uncertainty, between the negotiation of new trade regimes and the pandemic.
However, the price in this auction was almost certainly brought down by the impact of the pandemic on industrial emissions, as well as the fact that a number of participants will have been unable to register for the auctions in time, owing to well-publicised difficulties in setting up a UK registry account and navigating the auction eligibility requirements.
Furthermore, this is a constantly evolving market and, for a number of reasons, we expect the price for UK producers to rise relative to their EU counterparts, over the coming year. The smaller market, pent-up demand from operators who were unable to join today’s auction, and the growing interest from speculators are sure to lift the price. Whilst the spaced-out and lumpy design of the auction process lends itself to volatility.
But the biggest impact will come from the move to align the trajectory with our net zero target, which will require meeting an interim reduction target of 78% by 2035. This is much greater than the EU’s target of 55% by 2030, which the EU carbon market will align to.
We urge Government to consider the potential impact of sustained higher prices on UK manufacturers in the long-term, relative to the price in the EU scheme. UK industry can reach net zero but the infrastructure for doing so – competitively priced clean power, hydrogen and CCS – will not be there until the mid-2020s at the earliest.
Until we can effectively roll-out these net zero technologies, we need a level-playing field to continue to compete internationally. This would most quickly and effectively be achieved by linking our domestic carbon market to the much larger and well-established EU scheme.”
For more information please contact Simon Marsh at [email protected] or 07951 389197.
- Businesses who make chemical products and solutions are integral to something like 96% of all manufactured goods. Whether it is ingredients for food and medicines; paints and coatings for cars and planes or materials for mobile phones and electric vehicle batteries, the chemical industry is truly the “industry of industries” – also playing a critical role in the nation’s response to Covid-19 through its supply of hand sanitiser, PPE and vaccine ingredients.
- Chemical businesses are located throughout the UK, with many of them clustered together in the North East of England, North West of England and Central Scotland. These factories and laboratories, operated by a highly trained and skilled workforce, make a significant contribution towards the UK’s productivity performance – double that of any other manufacturing industry and triple that of any part of the UK economy.
- Nearly half a million people are employed in the sector or have roles that are dependent on the sector. Chemical workers typically earn 35% more than other manufacturing industries and 54% more than the average worker.
- From Runcorn to the Humber Bank; from Teesside to Grangemouth, chemical businesses and their employees right across the country are essential to the Government’s levelling-up agenda.
- We are the country’s biggest manufacturing exporter, sending goods to the value of more than £57 billion to other countries. The EU represents our most important market, but we continue to work closely with Government to inform and secure UK trade deals with other key chemical markets such as Japan and the USA.