Decision

UK ETS Authority Statement: Cost Containment Mechanism decision – January 2022

Updated 18 January 2022

Following the triggering of the UK ETS’s Cost Containment Mechanism (CCM) at the start of January, the UK ETS Authority has concluded that the appropriate course of action is not to 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 for January 2022 because the average price in each of October, November and December was above the January trigger level of £56.58.

This decision is based on the specific circumstances at the current time and does not prejudice future decisions. The UK ETS Authority will continue to monitor the market closely. Should the CCM be triggered again in the future, the UK ETS 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 recognises the sensitivity of the issues under consideration in the context of concern about energy prices and determination to tackle climate change. Ministers discussed these issues, acknowledging that any final decision was finely balanced. Following debate on these points the conclusion reached was that the UK ETS Authority should not intervene at this time, having also taken this approach following the December triggering of the CCM. This decision, like that in December, is aimed at upholding 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.

While UK ETS prices have remained elevated and triggered the CCM again, after careful consideration, the Authority judged that, on balance, prices were responding to fundamental market drivers and therefore concluded that intervention was not warranted on this occasion.

The UK ETS Authority recognises the importance of a well-functioning market for participants, and 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 UK ETS Authority will continue to release a steady supply of allowances to the market ahead of the 2021 compliance deadline of 30 April 2022. Around 81 million allowances will be auctioned across 2022 – including just under 26 million through fortnightly auctions before the end of April – as set out in the 2022 auction calendar published on 3 November.

In addition to this, free allocation for 2022, amounting to around 38 million allowances for stationary installation operators and around 4 million allowances for aircraft operators, will be issued by 28 February 2022. ^{[footnote 2]} This is on top of the approximately 42 million allowances already issued to scheme participants in 2021.

The UK ETS Authority remains committed to supporting the effective functioning of the market and will continue to explore ways to increase liquidity in the scheme. As previously set out on gov.uk, the UK ETS Authority is considering options for allowances within the overall cap - that were not allocated to operators - to be made available to the market.

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. ↩

2. As per the published Allocation Table on 18 January 2022. ↩