Investors bet record amounts on carbon credits pre-UK election

Wednesday 12th June 2024 07:16 EDT

Traders are betting at record levels that UK carbon credit prices will rise, anticipating that a future Labour government will implement stricter climate policies, increasing the cost of pollution. 

The benchmark price for UK carbon market allowances, which permit industrial polluters to emit CO₂, has surged 9 per cent since Prime Minister Rishi Sunak called a general election last month.  Yesterday, the benchmark price climbed to £47 per tonne of CO₂, continuing its rise from a low of £31 earlier this year. The price had previously been suppressed due to the Conservative government's decision to release more allowances over the next three years, reducing the cost for polluters. 

The most traded contract is for December delivery of carbon allowances, allowing polluters to secure the price before the permit holding deadline. Expectations of a government change next month have driven record bets on a year-end rise in UK carbon prices.  Hedge funds and asset managers are holding net long positions worth £300 million this week—the highest since the scheme's inception in 2021, according to the Intercontinental Exchange. 

Tim Atkinson, director of carbon sales and trading at CFP Energy, noted that speculation of Labour's stricter stance on major polluters is driving demand for allowances. “The view is, if the government wants to push the net zero agenda quicker, then they could further tighten the targets and remove surplus allowances,” he said. “They’re seen to be a greener government overall.”

While Labour has not explicitly stated its stance on market intervention, it told the FT it has a long-term plan to “make Britain a clean energy superpower.”

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