Officials are concerned that prices have been so high for the past four months that they may need to make a call on whether to intervene and make changes by 18 January.
Companies covered by the UK Emissions Trading Scheme (ETS) must purchase one “allowance” per tonne of CO2 emitted. This is intended to disincentivise use of the most polluting fuels, such as coal, closing the cost gap between these fuels and lower-carbon and zero-carbon alternatives.
For the second time in two months, officials have triggered the “cost containment mechanism”, which occurs when the carbon price is consistently above expectations. Carbon prices have remained high in recent months for a variety of reasons, such as the spike in natural gas prices making it relatively cheaper to burn coal even when accounting for the adjusted cost, in turn pushing up demand for ETS allowances.
The mechanism was triggered in December, as the average price per ETS allowance in September, October...