UK could limit bids and permit holdings to curb carbon price spikes

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Smoke rises above a factory at sunset in Rugby, Britain February 10, 2021. REUTERS/Matthew Childs/File Photo

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May 11 (Reuters) - (For this May 11 story, government officially corrects trigger price for CCM in paragraph 5)

The authority overseeing Britain’s new carbon emissions trading scheme (ETS) could impose limits on auction bids and holdings of permits to curb spikes in prices, a government policy paper said a week before the system goes live.

Britain is holding the first auction of carbon permits under its new domestic ETS on May 19, having left the EU ETS since leaving the single market at the start of this year.

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With the cost of European carbon permits having risen to all-time highs above 50 euros (around $60) a tonne, British policymakers are concerned about the prospect of price spikes.

Existing rules allow the authority running the system to increase the supply of permits under a so-called cost containment mechanism, or CCM.

The policy paper, published by the business ministry late on Monday, announced that based on May 10 EU carbon prices, the CCM would be triggered if prices were to remain above 44.74 pounds ($63.21) for three consecutive months. The trigger price would be updated monthly.

It also outlined further potential remedies, including measures that would target demand for permits as well as supply.

The new measures could allow the authorities to delay the deadline for emitters to obtain permits, alleviating a rush to buy them in time, as well as imposing limits on the size of auction bids.

Emissions trading schemes are a policy tool for reaching climate targets, charging emitters such as power plants and industrial factories for each tonne of carbon dioxide they emit.

To stay competitive, some companies are given free permits. The British scheme will issue just over 39 million tonnes in free allowances this year, the business ministry said in an update on Tuesday.

($1 = 0.8247 euros)

($1 = 0.7078 pounds)

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Reporting by Nora Buli in Oslo; additional reporting by Susanna Twidale in London Editing by Peter Graff

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