London, 18th January – The Energy Intensive Users’ Group (EIUG) today expressed their disappointment at the failure of the UK Emissions Trading System (UK ETS) Authority to take action to address rapid carbon price escalation.
The Cost Containment Mechanism (CCM) has been triggered two months in a row, indicating rapid carbon price increases. Furthermore, UK ETS prices over 2021 have outstripped inflation increasing by 40% over the last six months. The UK ETS Authority decided in December to take no action when the CCM was triggered for the first time. Today, the Authority has once again decided to do nothing to reduce UK carbon costs. This compounds the cumulative impact of rocketing energy and carbon prices that UK Energy Intensive Industries (EIIs) face.
Carbon prices rose to more than two times higher than the average price for the preceding two years raising costs for industrial and domestic consumers alike. When triggered, the CCM offers the UK ETS Authority several options to increase allowances in the market, boosting supply with the aim of containing prices.
Commenting on the lack of Government action Dr Richard Leese, EIUG Chair, said:
“UK carbon prices have been consistently higher than those faced by our European competitors. This adds to the competitive disadvantage for UK businesses, a situation which is compounded by the impacts of significant energy price rises. With the huge cumulative cost pressures facing EIIs, it is inexplicable that the Government and the UK ETS Authority has failed to use the tools immediately at its disposal to address this issue, which is largely associated with an immature UK carbon market.
Dr Leese continues:
“The CCM has been specifically designed as a safety valve to utilise when prices are elevated for a sustained period. Government claims the UK CCM has been deliberately designed to be more reactive than its European equivalent, but there is no point having a tool if it isn’t used. At a time of extraordinarily high gas, high electricity, and high carbon prices, the triggering of the CCM should have been a perfect opportunity for Government to lessen the cumulative cost pressure on EIIs without the need for new legislation or policy changes. Sadly, Government has failed to take this opportunity for a second time.
“Whilst the Government has chosen again not to take action, EIUG is committed to working with Government on solutions to reduce the UK competitiveness disadvantage.”
EIUG Contact: Director – Energy Intensive Users’ Group (firstname.lastname@example.org)
Notes to editors:
The EIUG represents the UK’s Energy Intensive Industries (EIIs) including manufacturers of steel, chemicals, fertilisers, paper, glass, cement, lime, ceramics, and industrial gases. EIUG members produce materials that are essential inputs to the UK manufacturing supply chains, including materials that support climate solutions in the energy, transport, construction, agriculture, and household sectors. They add an annual contribution of £29bn GVA to the UK economy and support 210,000 jobs directly and 800,000 jobs indirectly around the country.
These foundation industries are both energy and trade intensive – remaining located & continuing to invest in the UK and competing globally requires secure, internationally competitive energy supplies and freedom to export without tariff barriers. However, inward investment, growth and competitiveness have been hampered for years by UK energy costs higher than those of international competitors. In some cases, investment, economic activity & jobs have relocated abroad, leading to a subsequent increase in imports.
The Cost Containment Mechanism (CCM) is a tool for the UK ETS Authority (made up of representatives from the UK Government and Scottish, Welsh and Northern Irish devolved administrations) to intervene if carbon prices in the UK ETS are elevated for a sustained period. If the CCM is triggered, the UK ETS Authority will consider what intervention, if any, to make. Possible interventions centre around increasing the number of allowances to be auctioned through several methods. The CCM was triggered for the first time in December after the carbon price in the three preceding months exceeded the £52.88 trigger price. At that time the UK ETS Authority chose to take no action. The CCM has been triggered again in January after the trigger price of £56.58 was exceeded in the three preceding months. The UK ETS Authority is due to announce its decision on any intervention after trading hours on the 18th January 2022.