Guidance

Taking part in the UK Emissions Trading Scheme markets

Updated 10 April 2024

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Overview

A UK Emissions Trading Scheme (UK ETS) replaced the UK’s participation in the EU ETS on 1 January 2021.

The UK, Scottish and Welsh Governments and Northern Ireland Department of Agriculture, Environment and Rural Affairs – collectively making up the UK ETS Authority – have established the scheme to increase the climate ambition of the UK’s carbon pricing policy, while protecting the competitiveness of UK businesses. The UK ETS is established through The Greenhouse Gas Emissions Trading Scheme Order 2020.

This guidance explains the operation of the UK ETS markets and how to take part in auctions and in trading on the secondary market.

For background information on the UK ETS markets, see the UK Emissions Trading Scheme markets policy page.

For general guidance on participating in the scheme as an installation operator or aircraft operator, see Participating in the UK Emissions Trading Scheme.

UK ETS auctions

Auctioning will to be the primary means of introducing allowances into the market. Holders of Operator Holding Accounts (OHA), Aircraft Operator Holding Accounts (AOHA) and trading accounts with the UK ETS Registry will be able to take part in auctions. Participants are also able to trade allowances on the secondary market.

For information about the UK ETS Registry and how to open an account if you are a trader, see the guidance on participating in the UK Emissions Trading Scheme.

ICE Futures Europe currently provide the auction platform and secondary market services under the UK ETS.

The auction calendar confirms the volume of allowances available in each auction. Auctions are held every 2 weeks, as set out in the ICE auction calendar.

Auctions can clear, with allowances being sold to bidders, without all allowances being successfully bid for. Any remaining allowances not sold in an auction are redistributed across the following 4 auctions up to 125% of those auctions’ original number of allowances. Above this limit, allowances will transfer into the market stability mechanism account.

2022

The total number of allowances available for auction in 2022, as set out in the 2022 auction calendar, is around 81 million.

2023

The total number of allowances available for auction in 2023, as set out in the 2023 auction calendar, is around 79 million.

The 2023 auction calendar was first published by ICE on 28 October 2022, with a revised version published by ICE on 5 September 2023. The revised calendar takes account of the updated figure for Aviation operators’ free allocation entitlements, which have increased since the initial estimate. As the cap remains the same for 2023, the amendment to the 2023 auction volume is a reduction of 119,500 allowances spread across auctions to the end of the year from and including the 20 September 2023 auction.

2024

The 2024 auction calendar was published by ICE on 5 October 2023.

Just under 69 million allowances will be auctioned in 2024, reflecting that the new net zero consistent cap for the scheme announced in July 2023 is being implemented. Auctions will continue to take place fortnightly.

The Auctioning Regulations

The Auctioning Regulations govern the auctioning of UK Allowances (UKAs) and the provision of a secondary market. The Auctioning Regulations and Explanatory Memorandum contain additional policy background relating to UK ETS Auctions. BEIS has been appointed by HMT as UK Auctioneer for these auctions. This role is required by legislation and is responsible for the conduct of the auctions.

The Auctioning Regulations were made the Recognised Auction Platforms (Amendment and Miscellaneous Provisions Regulations 2021) Affirmative Statutory Instrument. This SI establishes a market and auction oversight role for the FCA in the UK ETS and establishes UK emissions allowances as ‘financial instruments’, ensuring they are subject to the correct regulatory treatment.

These Statutory Instruments have been amended by the Recognised Auction Platforms and Greenhouse Gas Emissions Trading Scheme Auctioning (Amendment) Regulations 2021. This Statutory Instrument updates the existing Instruments to provide greater clarity on the auction clearing price, the Cost Containment Mechanism (CCM) and the eligibility criteria for bidding in UK ETS auctions.

Participating in auctions

To be eligible to bid in UKA auctions, entities will need to be one of the following:

  • a UK ETS operator or a UK ETS aircraft operator
  • a member of a UK ETS operator or UK ETS aircraft operator’s group (i.e. parent companies, subsidiaries or fellow subsidiaries) which is not required to be located in the UK
  • a business grouping of UK ETS operators, UK ETS aircraft operators or their group, which is not required to be located in the UK
  • public/state bodies of the UK that control UK ETS operators, UK ETS aircraft operators or members of their group
  • a UK investment firm with a Part 4A FSMA permission that would require authorisation under the Markets in Financial Instruments directive (MiFID)
  • a UK credit institution with a Part 4A FSMA permission that would require authorisation under the Capital Requirements directive (CRD)
  • a third country (non-UK) investment firm with a Part 4A FSMA permission that would require authorisation under MiFID
  • a third country (non-UK) credit institution with a Part 4A FSMA permission that would require authorisation under CRD
  • a person covered by the exemption in paragraph 1(k) of Schedule 3 of the FSMA Regulated Activities Order 2001 (whose investment business is ancillary to their main commodities business, in accordance with regulation 16(2) of the Auctioning Regulations), provided they have a registered office (or head office if no registered office) in the UK.

Register for auctions

Auction participants will need to register with ICE as the appointed auction platform. Market participants who are interested in bidding in the auction should visit the ICE Futures Europe’s UK ETS auctions page and contact sales-utilities@theice.com.

Auction participants will also require an account in the UK Emissions Trading Registry. Entities can either open a UK ETS Trading account or, if holding a UK ETS Permit or Monitoring Plan already, can use their Operator Holding Account (OHA) or Aircraft Operator Holding account (AOHA) to take part in auctions.

Read guidance on how to apply for a UK Registry Account.

For operators and aircraft operators the OHAs and AOHAs will be opened for them by the Registry Administrator, however if they wish to buy and sell allowances, it is important that they register with ICE as soon as possible to start the process.

Auction Reserve Price

The UK ETS has an Auction Reserve Price (ARP) of £22, which establishes a minimum price for which allowances can be sold at auctions. Bids below this price will not be successful at auction. The ARP value was set in the Auctioning Regulations published on 11 February 2021. Since the launch of the scheme, the UK ETS Authority has considered the ARP a temporary policy, intended to ensure a smooth transition and then be phased out as the market matured. As the scheme continues to evolve, the UK ETS Authority is currently consulting on the future of the ARP.

Participating in the UK ETS secondary market

Once allowances have been released through auctions and free allocation, they can be traded on the UK ETS secondary market. The secondary market provides a means for market participants to source allowances outside auctions and free allocation, and it enables participants to plan ahead through hedging future carbon costs.

ICE Futures Europe hosts a secondary market for UKA derivatives. To find out more about how to participate in the secondary market hosted by ICE Futures Europe, email sales-utilities@theice.com.

If you are a UK ETS participant with compliance obligations seeking assistance on participating in the UK ETS secondary market, you may wish to consider researching brokers for UK ETS trading, or contacting your commodity trading partner or corporate bank for advice.

Cost Containment Mechanism

The Cost Containment Mechanism (CCM) provides a powerful tool for the UK ETS Authority to intervene if prices are elevated for a sustained period.

If the CCM is triggered, the UK ETS Authority will consider what intervention, if any, to make, and this decision will be based on addressing sustained price movements that do not correspond to market fundamentals. If there is no agreement on what action to take, the final decision will be taken by HM Treasury (HMT). This intervention can include:

  • redistributing allowances between the current year’s auctions
  • increasing the volume of allowances to be auctioned by:
    • bringing forward auctioned allowances from future years
    • drawing allowances from the market stability mechanism account
    • auctioning up to 25% of the remaining allowances in the New Entrants’ Reserve
    • auctioning allowances which form part of the industry cap on free allocation to stationary installations for the current or past scheme years where the amount of free allocation is lower than the industry cap
    • bringing allowances into auctions from the flexible share

Furthermore, the decision about what intervention, if any, to make will be clearly communicated to participants in a timely manner.

An explanation of the operation of the CCM is set out in the Explanatory Memorandum to the UK ETS Auctioning Regulations.

The CCM Trigger Price

The UK CCM had lower price and time triggers in the first 2 years of the UK ETS when compared to the equivalent EU ETS mechanism: this was to ensure the intervention could be more agile in early years while the UK ETS matured.

Until January 2022, the CCM was triggered if the average end of day settlement price of a UK allowance (UKA) December futures contract was more than 2 times the average price for the preceding 2-year ‘reference period’, for 3 consecutive months (the ‘monitoring period’).

From February 2022 until January 2023, the CCM would have been triggered if the average end of day settlement price of the relevant UKA December futures contract was more than 2.5 times the average price for the reference period for the duration of the monitoring period (3 consecutive months).

From February 2023 onwards, the CCM will be triggered if the relevant UKA December futures contract is 3 times the average price for the reference period for 6 consecutive months.

The following diagrams show 2 scenarios where the CCM would and would not be triggered according to CCM rules from February 2023 onwards:

Reference period

The 2-year reference period ends when the monitoring period starts. Until January 2023, the monitoring period was 3 consecutive months. From February 2023 onwards, the monitoring period is 6 consecutive months.

This means that currently the whole period under consideration is 30 months. This is split into 2 components – the 2-year ‘reference period’ followed by the 6-month ‘monitoring period’.

When the 2-year reference period started in 2019, the carbon price calculation included the end of day settlement prices of the EU allowance (EUA) December futures contracts up until 31 December 2020. EUA prices were used as a reference due to the limited UK ETS market data available since the UK ETS secondary market only started in May 2021. After 31 December 2020 EUA prices were no longer counted. This price was converted from EUR to GBP using the respective historical daily spot exchange rate, provided by the Bank of England.

From 1 January 2021 onwards, the end of day settlement prices of the UKA December futures contracts is counted. However, from 1 January 2021 to 18 May 2021 there were no UKA future contracts. Therefore, these days were treated as non-trading days and did not contribute to the 2-year average.

6-month monitoring period – CCM trigger prices and monthly average prices

The monthly average carbon price is calculated by dividing the sum of the end of day settlement prices for the relevant December futures contract during each month by the number of days in the month for which a price is published. For trading days from 19 May 2021 until 30 November 2021, the 2021 UKA December futures contract was used. From 1 December 2021 until 30 November 2022, the 2022 UKA December futures contract was used. From 1 December 2022 until 30 November 2023, the 2023 December futures contract was used. From 1 December 2023 until 30 November 2024, the 2024 December futures contract will be used.

In order for the CCM to be triggered from 2023 onwards, there must be 6 consecutive months where monthly average prices are above the trigger price.

The Cost Containment Mechanism was triggered in the UK Emissions Trading Scheme for both December 2021 and January 2022. The UK ETS Authority decided not to intervene in the market on both occasions. See the UK ETS Authority Decision Statements for more information.

Month 2-year reference period Trigger price 6-month monitoring period Month 1 average price Month 2 average price Month 3 average price Month 4 average price Month 5 average price Month 6 average price CCM triggered? Yes or No
Apr-24 1 Oct 2021 - 30 Sep 2023 £211.18 Oct, Nov, Dec, Jan, Feb, Mar £43.48 £41.89 £39.31 £36.98 £35.35 £36.60 No
May-24 1 Nov 2021 - 31 Oct 2023 £208.90 Nov, Dec, Jan, Feb, Mar, Apr £41.89 £39.31 £36.98 £35.35 £36.60 TBD No
Jun-24 1 Dec 2021 - 30 Nov 2023 £206.53 Dec, Jan, Feb, Mar, Apr, May £39.31 £36.98 £35.35 £36.60 TBD TBD No
Jul-24 1 Jan 2022 - 31 Dec 2023 £202.29 Jan, Feb, Mar, Apr, May, Jun £36.98 £35.35 £36.60 TBD TBD TBD No
Aug-24 1 Feb 2022 - 31 Jan 2024 £197.27 Feb, Mar, Apr, May, Jun, Jul £35.35 £36.60 TBD TBD TBD TBD No
Sep-24 1 Mar 2022 - 29 Feb 2024 £191.36 Mar, Apr, May, Jun, Jul, Aug £36.60 TBD TBD TBD TBD TBD No
Oct-24 1 Apr 2022 - 31 Mar 2024 £186.57 Apr, May, Jun, Jul, Aug, Sep TBD TBD TBD TBD TBD TBD TBD

See the full table of CCM trigger prices and average monthly prices since August 2021.

The CCM cannot be triggered until at least October 2024, since the trigger price has not been met in at least one of the prior monitoring months as per the 6-month monitoring period table above.

To calculate whether the CCM is triggered for October 2024, the relevant reference period is 1 April 2022 to 31 March 2024. The trigger price for October 2024 is £186.57. If the monthly average prices in April, May, June, July, August and September are all above £186.57 then the CCM will be triggered for October 2024.

Triggering the CCM in any month runs separately from triggering for previous months and depends on the calculation of future monthly average prices.

The UK ETS Authority will update this page monthly with the latest CCM trigger prices and monthly average carbon prices. The next monthly update will be on 10 May 2024.

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