Government set to step in as carbon price mechanism is triggered after market rally

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Will Gardiner, chief executive, said the group continues to play an "essential role," in the UK's power mix
Will Gardiner, chief executive, said the group continues to play an "essential role," in the UK's power mix

Ministers could intervene in the carbon market to reduce the costs big polluters have to pay for emissions permits, according to The Times.

Rather than actively looking to reshape the carbon industry, soaring prices amid market rallies are forcing its hand.

The Department for Business, Energy and Industrial Strategy said in a stock exchange announcement that the price of carbon allowances had breached the threshold for government to step in.

Prices have soared since November from about £50 per tonne of carbon dioxide to £74 per tonne.

Officials will assess options such as bringing forward the issuing of emissions permits.

A final decision could be left to the Treasury, with an announcement expected on December 14.

The carbon allowance system allows the government to create permits for units of emissions, and set a cap on the maximum level of emissions permitted for businesses.

Companies that are heavy polluters are obliged to buy credits granting them permission to emit one tonne of carbon – which they can sell back if they reduce carbon emissions.

The global energy crisis and a renewed emphasis on emissions following the COP 26 climate summit in Glasgow has powered a price surge in allowances provided by EU and UK trading systems.

In particular, the gas supply shortage has led some energy producers to switch over to cheaper but more carbon-intensive coal.

Consistently high prices since September have triggered the UK’s “cost containment mechanism” (CCM) for the first time.

This forces the Government to consider whether to intervene in the market.

Under UK rules, the intervention mechanism is triggered if allowances trade at more than double the average price of the previous two years for three consecutive months.

Since the system was established in May, the threshold is calculated using a combination of historic UK and EU prices.

The newer UK scheme has lower price and time triggers for the first two years it operates, compared with the EU’s mechanism.