The outlook for the UK ETS this week is bullish. No UKA auction this week should help to keep the market supported, while a return to significantly colder weather than last week is likely to add some buying demand as fossil fuels make up the bulk of power generation (see chart 2 below). Meanwhile the same geopolitical dynamics that are affecting gas, coal and EUA prices apply in the UK as well, so demand destruction and UKA selling by utilities to raise funds for gas and coal positions are possibilities that could send UKA prices lower. With no new UKA supply, cold weather and low renewable generation, risk is more likely of price gains than losses.

The UK ETS is currently calibrated in such a way that will likely not deliver much emissions abatement at all by 2030, with current prices seemingly propped up by significant interest from utilities wanting to swap EUA hedges to UKAs. The UK Government has launched consultations on their proposals to recalibrate the market to encourage emissions cuts, and to bring the maritime shipping sector into the UK ETS.

  • The first proposal shifts the cap on emissions approximately 30% lower than the cap for 2021, starting in 2024. In the near term the government is also proposing to add some un-distributed UKAs to auctions to smooth the way to a lower overall cap on emissions.
  • ‘Domestic’ maritime shipping is envisioned to be brought into the system by the mid-2020s.

For more details on longer term UK ETS developments, please contact us.

UK ETS Outlook: bullish

Indicative UKA price: £79.00

YTD average UKA price: £79.07

MTD average UKA price: £74.85

1. UKA Dec22 Price Chart 2. Snapshot of UK energy generation 28/3
from grid.iamkate.com

 

For more details on market outlook & protecting against your carbon risk, please email or call +31 20 522 0292