UK carbon price falls to record low

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The cost of UK carbon emissions permits has fallen to an all-time low, raising fears it will weaken the incentive to build cleaner renewable energy sources.

Futures contracts tracking the UK carbon price to December dropped to £31.48 per tonne of carbon dioxide on Monday, with analysts blaming the decline on the mild winter weather, slowing demand from industrial users and an excess of permits available to cover pollution in Britain.

The price has recovered marginally, closing on Thursday up 6.4 per cent at £36.71, but is trading at its lowest since the UK started its replacement for the EU trading scheme in May 2021 following Brexit.

That marks a 43 per cent decline compared with a year ago and a hefty discount to the €62-a-tonne price quoted on its EU rival, as well as similar schemes in the US.

UK prices have been under pressure on concern over an economic slowdown and intensified after the government introduced generous levels of allowances last July.

Under the scheme, heavy polluters such as gas-fired power plants and refineries have to buy allowances to pay for any emissions above a threshold. Over time polluters are pushed towards cheaper and lower carbon forms of energy and production.

The low prices are “really concerning” as the emissions trading scheme “is probably the UK’s primary decarbonisation mechanism”, said Adam Berman, deputy policy director at energy industry trade group Energy UK.

“We need a strong, stable and predictable carbon price signal to ensure that investment heads in the right direction,” he added. “A low carbon price sends absolutely the wrong signal about the UK’s commitment to net zero.”

Marcus Ferdinand, chief analytics officer at carbon consultancy Veyt, said the slide also reflected “constantly eroding trust in the market as climate policies are weakening under the Sunak government”….