UK Government sells four million allowances in carbon auction

Four million allowances were sold in total, at £13.60 each, in an auction where participants placed bids into a competitive bidding facility using a bespoke Bloomberg auction platform. In total, the auction raised over £54 million before VAT for the Treasury, paving the way for further auctions next year that will result in 25 million allowances being sold.

The price was slightly under £14 plus a unit that was being estimated by some energy and environmental markets analysts before the auction and much lower than the price carbon would have fetched earlier in the year before the economic downturn.

However, Energy and Climate Change Minister of State, Mike O'Brien, said the auction demonstrated the UK’s continued leadership in reducing carbon emissions as part of the fight against climate change.

“The EU Emissions Trading Scheme is central to keeping the price of tackling climate change as low as possible to industry and the economy,” he said.

The EU Emissions Trading Scheme (ETS) puts a cap on carbon emissions of the big polluting sectors, such as energy and heavy industry, which are collectively responsible for almost half of the EU's emissions of carbon dioxide. Around 12,000 installations, including large energy generators, cement manufacturers and chemical plants in the EU, are affected by the cap.

Operators in these sectors must submit one allowance for every tonne of CO2 they emit. In the current trading phase, which runs from 2008 to 2012, most allowances are allocated in the first place for free. Governments are allowed to auction up to 10 per cent of the allowances they have to allocate. 

The UK Government is in favour of auctioning, as it considers it reduces the potential for windfall profits and strengthens incentives for companies to cut emissions.

“We want more auctioning in the future – and are already planning to auction 100 per cent of the allowances needed by the power sector from 2013. This auction highlights the importance of using the market to drive down emissions and create incentives for the development of low carbon technology," said O’Brien.

Today’s bid was conducted through four intermediaries - Barclays Capital, JP Morgan, BNP Paribas and Morgan Stanley – but the Government wants more intermediary firms to sign up for future auctions to facilitate broader access to the auctions.