UK ETS introduces tighter limit on emissions
Image courtesy Department for Energy Security and Net Zero
The scheme – which has been in place since 2021 – puts a limit on the total amount of greenhouse gases aviation, power and other energy intensive industries can emit. This incentivises industries away from costly fossil fuels and encourages them to cut their carbon footprint by investing in energy efficiency and cleaner, or renewable technologies, which in turn can boost energy security.
The reforms announced today build on the success of the UK ETS so far, increasing ambition while managing the transition in a way that supports affected industries.
From next year, these industries will be required to bring their emissions down at the rate needed to reach net zero goals – sending a clear signal to industry to invest in the long-term decarbonisation that will help the UK to maintain its world-leading position in cutting carbon emissions.
To ease this transition, the cap will be set at the highest level of the range consulted on, in line with net zero - allowing maximum flexibility for industries. Extra allowances will also be made available to the market between 2024 and 2027, while the current levels of free allocation of allowances for industry has also been guaranteed until 2026, to continue to protect them from international pressures.
The Authority has also today announced that the UK ETS will be extended to cover more sectors – domestic maritime transport from 2026 and waste from 2028 – while rolling out a phased removal of free carbon allowances for the aviation industry in 2026 and supporting investment in new Greenhouse Gas Removal technologies.
In a joint statement, UK ETS Authority Ministers, including Lord Callanan, Julie James MS, Màiri McAllan MSP and Gareth Davies MP said: 'With the recent rises in energy prices, it is more important than ever that we accelerate the transition away from costly fossil fuels, towards greener and more secure energy.
'Our UK Emissions Trading Scheme, along with other interventions, forms part of a wider strategy to provide a long-term framework to incentivise UK industries to decarbonise - seizing the huge opportunities that are arising from a rapidly expanding clean energy sector, and providing the certainty that industries need to invest in new green technologies.
'The decisions taken here will not only put us on the path to net zero, but will also support crucial industries on their path to long term sustainability.'
The UK ETS was launched in 2021 to replace the UK’s participation in the EU ETS. The scheme incentivises decarbonisation through a process of buying and selling emissions allowances, which companies must obtain for every tonne of emissions they produce each year. Companies that are successful in reducing their emissions can sell unused allowances to other firms.
The ETS supports businesses in sectors that face significant overseas competition with free emissions allowances, to ensure their efforts to decarbonise are not undermined by higher-carbon competitors – a risk known as carbon leakage. Carbon leakage refers to the movement of production and associated emissions from one country to another due to different levels of decarbonisation rules, such as carbon pricing and climate regulation.
Also announced today is the decision to keep support through free allowances at current levels until 2026, to give industries certainty over the level of support available in the medium term.
The Authority recognises that a comprehensive suite of policies including funding, regulation and carbon pricing is needed to deliver the decarbonisation we need this decade and beyond.
Aviation free allocations to be phased out
In another move towards decarbonising the economy, the UK ETS Authority has today announced its decision to phase out aviation free allocations in 2026. This decision is taken in light of evidence of minimal risk of carbon leakage, meaning ETS aviation emissions are unlikely to be displaced as a result of the UK ETS.
Instead, aviation businesses need to buy allowances for every tonne of carbon emitted under the scheme. To help aircraft operators prepare for this transition, free allocation entitlement will continue as planned in 2024 and 2025 until 2026.
