The UK emissions trading system's (ETS) cost containment mechanism (CCM) trigger level for October is 5pc higher than for September, as the market remains on track to activate the measure in August.
The UK ETS December 2021 contract must settle on average above £48.37/t of CO2 equivalent (CO2e) in July, August and September for the market's CCM to be triggered in October, the UK government said.
This is comfortably above a trigger level of £44.74/t CO2e for August — the first month in which the mechanism could be activated, following the launch of the market in May — and £45.90/t CO2e for September.
This reflects a rise in carbon prices over the two-year reference period upon which the level is based. In 2021 and 2022, the CCM is triggered if the average UK ETS front-year allowance settlement price is double the average settlement price for the preceding two-year period for three consecutive months.
The CCM remains on track to be triggered in August. The UK ETS front-year contract settled at an average of £49.09/t CO2e in May and £46.08/t CO2e in June, and has averaged £45.54/t CO2e so far this month.
But the product settled at an all-time low of £43.05/t CO2e yesterday, and a continuation of this downward trend could see July's average pull below the trigger level.
The mechanism is designed to help manage persistently high prices in the UK carbon market. If triggered, the UK ETS authority will decide whether and in what form to intervene in the market.
This could include changing the distribution of the year's auction volumes, bringing forward a proportion of future years' auction volumes, or releasing permits held in the new entrants' reserve or market stability mechanism account.
