U.K. Set to Intervene in Carbon Market If Prices Stay Elevated

(Bloomberg) -- The U.K. government said it’s on track to intervene in its national carbon market in December if prices remain elevated through November.

In September, carbon averaged 58.36 pounds per metric ton, or more than 10% higher than the price that would trigger government action. Prices are required to stay above the trigger for three consecutive months before the government is allowed to intervene through a measure known as the cost-containment mechanism, which enables it to increase the supply of permits. 

The cost of carbon in the U.K. has surged in recent months, gaining more than 40% in September, as the price of cleaner natural gas rose and the country turned to polluting coal plants to supply the electric grid. Companies and factories use carbon permits to cover their emissions.

With the carbon price closing Monday at nearly 64 pounds, traders are likely expecting the mechanism will be triggered. 

The government could add supply to the emissions market by bringing forward permits from future auctions. An increase in supply is meant to help push down the price, but it’s unclear whether it will work.

It’s also not clear that buyers will be able to absorb extra permits that are on auction. Last week, more than 20% of the permits up for auction didn’t find a buyer. That sent the price plummeting. 

The cost-containment mechanism could be triggered again in January if the average price from October through December stays higher than 56.58 pounds per ton.

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