Brexit Britain’s new carbon market makes polluting pricier

Bloomberg

The first handful of trades in the UK’s new carbon market indicates that polluting will be more expensive for everyone from power plants to factories than it is under the European scheme.
The launch of the UK’s own carbon system is a replacement for the country’s participation in a nearly identical EU program that’s been going since 2005. Putting a price on carbon raises the dilemma for a British government of how to be a world leader on climate issues, but also make sure its businesses can compete globally.
UK carbon futures traded about 9% higher than the equivalent contract in the European Union after opening at a 12% premium. The difference will be a blow for UK power generators who have hedged production by buying cheaper European carbon permits as they now have to buy more expensive domestic contracts instead.
While there hasn’t been much activity yet, it’s still a good indication of how the market values UK permits, said Louis Redshaw, chief executive officer of Redshaw Advisors Ltd and a former Barclays Plc trader. The auction could result in a higher price than in EU as utilities rush to buy credits, he said.
“There’s pent up demand,” Redshaw said. “Electric utilities will buy everything they possibly can” in the auction.
Under the EU system, carbon auctions usually begin in January, meaning British installations have gone nearly five months without any supply in the market.
Scottish utility SSE Plc said in February it had suspended
carbon hedging because of the risk of divergence between the systems.
The disparity may only grow as EU permits continued its bearish week.