U.K. Had Post-Brexit Carbon Price Premium of 48% Over the EU; It Was Wider by the End of the First Day (3)

By Mathew Carr

May 19-20, 2021 — LONDON: The U.K. had a post-Brexit carbon price premium of about 48% after trading began in its new futures market Wednesday. By the end of the first day, it was even wider.

December U.K. futures were at 49.5 pounds per ton at 8:15am on ICE Futures Europe exchange in London yesterday. Adding in Britain’s 18 pound carbon floor support policy, that was the equivalent of 67.8 pounds (78.28 euros) a ton versus 52.80 euros for December EU futures. By the end of the session, the premium had widened to 51%, as both markets declined. It’s back at about 48% this morning (Thursday).

The floor support for power generators is like a top-up tax, introduced by Britain in 2013 to attack coal, help cut emissions and fill a government-budget hole.

The premium of Britain’s carbon price is important because it encourages gas use and boosts investment flows to clean projects. By cleaning electricity first, economies can speed the transition away from fossil fuels because power is often an alternative. Spare electricity can further be used to produce green hydrogen fuel.

Here was the first day of trade for U.K. carbon futures:

Here was the same for EU allowances:

Here are EU allowances over the past three months, showing Wednesday’s second day of big falls:

See these tweets that highlight high volumes yesterday:

And here is an update on yesterday’s trade:

See also this from Redshaw Advisors:

Britain has a more ambitious emission-reduction target of 68% in the 40 years through 2030 compared with at least 55% for the EU.

The first, post-Brexit auction of U.K. allowances yesterday raised more than a quarter of a billion pounds for U.K. taxpayers (see below).

Investors are beginning to favor projects in countries with the strongest climate policies, because those will have lower financial risks as the climate crisis worsens.

Some see the U.K. and EU markets merging, as soon as later this year.

Photo by Dylan Bueltel on Pexels.com

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U.K.’s First Post-Brexit Carbon Auction has Clearing Price of £43.99/Ton

Sale of 6.05 million tons of carbon allowances raised £266 million; auction had cover ratio of 4.8, according to data from ICE Futures Europe.

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Some analysts remain very bullish for both markets, despite the recent correction:

(Clarifies the floor support is for power generators, adds context on the importance of clean electricity; earlier adds additional Redshaw tweet; earlier updates with tweets and context after end of first day, first UK auction)

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