Decision

UK ETS Authority statement: Cost Containment Mechanism decision – December 2021

Updated 18 January 2022

Following the triggering of the UK Emissions Trading Scheme’s (ETS) Cost Containment Mechanism (CCM) at the start of December, the UK ETS Authority – made up of HMG, the Scottish Government, Welsh Government and Northern Ireland Executive – has decided that the appropriate course of action is to not redistribute or release additional supply into the scheme’s market at this time.

The Cost Containment Mechanism, provided for by the Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021, enables the UK ETS Authority to intervene, if deemed appropriate, if prices are elevated for a sustained period. ^{[footnote 1]} It was triggered in December because the average price in each of September, October and November was above the December trigger level of £52.88.

After the CCM was triggered, the Authority assessed evidence on the functioning of the UK ETS market and considered options for intervening under the UK ETS Auctioning Regulations. The UK ETS Authority agreed that the appropriate decision at this time is not to intervene in the market.

This decision is based on the specific circumstances at the current time and does not prejudice future decisions. The Authority will continue to monitor the market closely. Should the CCM be triggered again in the future, the Authority will consider the most appropriate course of action given the market context and will implement any intervention in a timely manner.

A statement from Authority ministers read:

The UK ETS Authority agreed that not intervening was the right course of action on this occasion to support the continued effective functioning of the UK ETS market. The Authority has confidence that this decision will uphold the objectives of the UK ETS as a market-based approach to reducing emissions and incentivising participants to find the most cost-effective solutions to decarbonise.

The Authority took into account the factors that may have affected UK ETS allowance prices, and the context of recent developments in energy markets.

The UK ETS Authority will continue to monitor the market closely and remains prepared to take timely and proportionate action, within the rules of the scheme, to support its effective functioning should the CCM be triggered again.

As planned, the Authority will continue to release a steady supply of allowances to the market ahead of the 2021 compliance deadline of 30 April 2022. Around 80 million allowances will be auctioned across 2022 – including just under 25.8 million before the end of April – as set out in the 2022 auction calendar published on 3 November. A further 5.4 million allowances are also due to be auctioned in the final 2021 auction on 15 December.

In addition to this, free allocation for 2022, amounting to around 39 million allowances for stationary installation operators and around 4 million allowances for aircraft operators, will be issued by 28 February 2022. This is on top of the approximately 43 million allowances already issued to scheme participants in 2021.

Read further guidance on the UK ETS, including on the CCM.

1. The CCM is provided for by the Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021. The regulations provide the option for Treasury ministers to authorise interventions in the market. If the CCM is triggered, the UK government and the devolved administrations work together to consider what intervention, if any, Treasury should authorise. If there is no agreement on what action to take, the final decision will be taken by the Treasury. ↩