Carbon pricing · markets
Floor Price
Definition
A floor price is a minimum level below which a price is not permitted, or not expected, to fall. In carbon markets it takes two forms: an auction reserve price, the minimum accepted bid at allowance auctions (the UK ETS reserve was raised from £22 to £28 per tonne in 2026), and an explicit carbon price floor, a policy top-up that guarantees a minimum carbon cost — the UK's Carbon Price Floor, introduced April 2013, did this by charging fossil-fuel generators Carbon Price Support rates under the Climate Change Levy, a mechanism set at £18/tCO2 until its discontinuation from April 2028. In commodity and fair-trade contexts, floor price denotes the guaranteed minimum paid to producers, as in the Fairtrade Minimum Price.
References
Supports definition and framing.
Supports definition and framing.
Overview
What it means
Floors protect investment signals: a guaranteed minimum carbon price keeps abatement economics viable even when allowance markets crash, while commodity floors protect producers from price collapse. The two mechanisms (auction reserve vs tax-style floor) achieve this differently and should not be conflated.
How it is used
Used in emissions-trading design, carbon-tax policy and fair-trade certification.
Why it matters
Price floors turn volatile market signals into bankable ones, determining whether low-carbon and ethical-sourcing investments clear their hurdle rates.