We designed the UK VCC® to help companies lock in UK CBAM costs. While the liability associated with UK CBAM is paid directly to HMRC, it is possible to hedge against carbon price volatility inherent in the UK ETS market. This is because any final UK CBAM liability to HMRC is directly linked to the price of UK Allowances (UKAs).
The UK VCC® enables companies to fix UK CBAM costs today, providing greater certainty over cost exposure while retaining flexibility.
With the UK VCC® businesses can secure a fixed price for their UK CBAM liability to HMRC ahead of time, reducing exposure to fluctuations in carbon prices linked to the UK Emissions Trading Scheme (UK ETS).
This approach helps companies hedge against carbon price increases tied to the UK ETS market.
The UK VCC® currently trades over-the counter only and is offered exclusively by Redshaw Advisors and approved UK VCC® partners. There are two tenor types:
Spot: Spot purchasing is the simplest and lowest cost solution for businesses ready to pay upfront. Spot offers full flexibility at no extra cost and the transaction can be fully collateralised with EUAs.
Forward (margined): Forward purchasing is for businesses looking to reduce upfront costs. Any flexibility is subject to negotiation and price change.
The final UK CBAM liability to HMRC is directly linked to the cost of UK Allowances (UKAs), which represent the right to emit one tonne of carbon dioxide equivalent (CO₂e) under the UK ETS.
The formula for calculating this liability is:
Mean average of all UK ETS auction clearing prices for the relevant quarter x Free allocation adjustment = CBAM liability
While the liability associated with UK CBAM is paid directly to HMRC, it is possible to hedge against carbon price volatility inherent in the UK ETS market.
Businesses who hedge their UK CBAM costs benefit from reduced budgeting uncertainty linked to UK CBAM obligations and improved cash-flow and trading flexibility.
The UK CCI® is Redshaw Advisors' proprietary index designed to track the prices of UK Allowances (UKAs) over time.
Built to provide transparency and market insight, the UK CCI® reflects weekly and quarterly price averages for UKAs, helping businesses understand compliance costs and market trends.
Knowing the current average price for a given quarter supports businesses aiming to hedge within the quarter as well as make decisions regarding any future liability.
However, auction prices represent just one point of price discovery. UKAs are actively traded on the secondary market between 7am and 5pm UK time on weekdays (excluding bank holidays), meaning auction prices are heavily influenced by market activity.
As a result, Redshaw Advisors considers not only auction closing prices, but also price movements and market drivers in the secondary market. This broader view helps assess where UKA prices, and by extension, UK CBAM liability prices, are likely to go.
The UK CBAM is significantly reshaping the cost of carbon-intensive imports. The UK VCC® is a forward-looking solution that allows you to lock in your UK CBAM costs today.
With the UK VCC® you can:
