ICE to Auction Carbon Allowances for U.K. After Brexit, to Offer Futures by June 30 (2)

By Mathew Carr

Dec. 17, 2020 — LONDON: Global exchange group ICE won a deal to hold auctions of U.K. carbon allowances for Britain, once the nation bows out of the EU at the end of the month and leaves Europe’s emissions market.

The sales of British carbon allowances would start by the middle of next year and ICE would offer futures in the same time frame, giving British emitters some idea of when they’ll be able to manage the risks of their exposure to the program, ICE said in a statement.

The U.K. hopes to link its market with the EU program, the world’s biggest, but Brexit politics may get in the way. The Brexit transition year is meant to end by the end of 2020, and negotiators have repeatedly missed deadlines.

It’s unclear whether there’s still a chance that the U.K. could remain in the EU system, which would be the most logical solution, given power and natural gas interconnectors and the two sides’ mutual push for a cost-effective climate transition that shows the world how to do it.

Other options for linking Britain’s carbon market could include Canada, Australia, South Africa, Latin American nations, Kenya — joining with those countries would require more lawmaking than joining with the EU, according to well-placed people.

(Adds futures to headline, options, context)

Here’s the ICE press release cut and pasted:

ICE appointed to host U.K. emissions auctions for the UK Emissions Trading Scheme

LONDON–(BUSINESS WIRE)– Intercontinental Exchange, Inc. (NYSE:ICE), a leading operator of global exchanges and clearing houses and provider of mortgage technology, data and listings services, announces that ICE has been appointed to host emissions auctions on behalf of the UK Government’s Department for Business, Energy and Industrial Strategy (BEIS).

As announced on December 14, 2020, the UK Government and Devolved Administrations will launch a UK Emissions Trading Scheme (UK ETS) from January 1, 2021, to replace the UK’s participation in the EU ETS.

Further details on the auction calendar and the spot and futures contracts ICE intends to launch in connection with the new UK ETS will be announced in due course. ICE plans to commence auctions and launch the related futures contracts as soon as feasible and no later than the second quarter of 2021, subject to regulatory approval.

“We congratulate the UK Government for its commitment and vision for a UK emissions trading scheme and are delighted to continue hosting auctions on its behalf,” said Gordon Bennett, Managing Director, Utility Markets at ICE.

“Market-based mechanisms like carbon cap and trade programs are pivotal in allowing policy makers to control the quantity of carbon to align with their net-zero commitments and consequently put a price on the externality of pollution to reach those goals in the most cost-effective manner.”

ICE has conducted Phase III EUA auctions on behalf of the UK Government since November 2012 and the first EUAA auction on ICE took place in September 2014.

ICE has been a leader in environmental markets for nearly two decades. A wide and increasing group of stakeholders use the price signals from ICE’s markets and indices to help assess climate transition risk in their portfolios, and access liquidity pools for compliance purposes, managing risk and allocating capital to benefit from energy transition opportunities.

On December 4, EUA open interest (OI) hit a record value for notional equivalent of more than €51.4 billion. EUA futures and options are part of ICE’s environmental complex which also includes futures and options connected to ICE’s California Carbon allowances (CCA), Regional Greenhouse Gas Initiative (RGGI) and renewable energy credits (RECs). Average daily volume in the environmental complex is up by approximately 20%, with OI up by approximately 16% from the end of 2019.

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