Citi: UK Carbon Price Set To Halve

UK carbon permit prices could fall by almost 50% thanks to the UK government’s “lack of political ambition” to reform the country’s emissions trading system, analysts at Citigroup Inc. have warned. According to Citi, the credits could fall to £22 ($28) a metric ton, the auction reserve price for Britain’s carbon market. The cost of the credits has already plunged 42% in the current year to £40.50, almost half the level of similar contracts in the European Union market. 

The cost of UK pollution rights slumped to a two-year low after the government unveiled its plans for reforming the country’s emissions market. The fresh proposals tighten the cap on the rights through 2030 by about 30% but also come with the release of about 54 million allowances from 2024 to 2027 to ease the pace of the supply cut, effectively making it cheaper for the industry to emit CO2. Prime Minister Rishi Sunak has committed to granting hundreds of new oil and gas production licenses in the North Sea amid growing concerns among his Conservative Party that green policies will hurt household finances.

Back in November, the government announced plans to increase a windfall tax on oil and gas producers’ profits to 35% from the previous rate of 25%. The new rate, which applied from 1 January 2023 until March 2028, is part of a raft of budgetary measures aimed at tackling the cost of living crisis and shoring up the UK’s finances. Normally, UK oil and gas companies operating on its continental shelf are subject to a 40% tax rate, much higher than the 19% rate on corporate profits for companies in other sectors. The new levy now means that companies like BP and Shell Plc.(NYSE: SHEL) will now fork over 75% in taxes, up from 65% in 2022.

British giant BP Plc (NYSE: BP) announced annual profits of nearly $28 billion for FY 2022,  more than double the year before and the biggest in the company's 114-year history. BP was able to post the record profits despite taking a massive post-tax charge of $24.4 billion in its 1Q 2022 results, the largest such impact on any company globally, after exiting its 19.75% stake in Russia’s Rosneft PJSC. Meanwhile, British Gas owner Centrica Centrica Plc (OTCPK:CPYYF) (OTCPK:CPYYY) saw its FY 2022 profits triple to a record 3.3 billion pounds last year amid high energy prices. Centrica's bottom-line received a big boost by soaring profits in its upstream oil and gas division, with wholesale gas prices in the country hitting record highs last year. 

By Alex Kimani for Oilprice.com

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