Developing the UK Emissions Trading Scheme (UK ETS)
Download the full outcome
Detail of outcome
Update: 25 July 2023 - Note on implementing legislation
Legislation is required to implement the changes to the cap in the Authority’s Response. In the absence of a Northern Ireland Executive and sitting Assembly, it is not currently possible to make changes to the UK ETS Order using an affirmative procedure Statutory Instrument under the Climate Change Act. The UK ETS Authority has nevertheless agreed that the UK Government should amend the UK ETS Auctioning Regulations to give effect to the agreed policy. This will set the auction share and therefore the number of allowances that enter circulation in line with the proposed net zero cap. The relevant committees in the UK Parliament, Scottish Parliament and Senedd have been engaged on this approach.
It is the Authority’s intention to pursue a legislative programme in line with the decisions and intentions made in the main UK ETS Authority response, including for the cap set out in the Response for 2026 and beyond. The Authority will take the necessary steps to collectively deliver all legislation in a timely manner, subject to parliamentary consent where necessary. Stakeholders should be guided by the response, which sets out the Authority’s view.
Main government response
We have made the following decisions:
- setting the UK ETS cap to be consistent with net zero and doing this at the top of the net zero consistent range
- smoothing the transition to the net zero cap through releasing 53.5 million additional allowances from the reserve pots to the market between 2024 and 2027
- setting the industry cap at 40% of the overall cap
- providing long term market resilience, putting aside 29.5 million allowances for future market management
- reviewing technical changes to free allocation
- phasing out free allocation for the aviation sector for the 2026-2030 allocation period
- expanding the scope of the scheme to include additional sectors in the UK ETS and capping a greater proportion of UK emissions
- incorporating Greenhouse Gas Removal (GGR) technologies in the UK ETS, subject to further consultation
See the main government response for the full detail.
Initial government response
This consultation included a small number of proposals that require implementation via legislation ahead of the 2023 scheme year, so we published an early response to set out final positions on these particular proposals before they take effect.
This early response outlines the feedback we received and the Authority decisions on the following proposals:
- aviation
- the inclusion of flights from the UK to Switzerland in the UK ETS from January 2023
- the permitting of virtual site visits for aviation verifiers in situations other than circumstances that are serious, extraordinary and unforeseeable
- updating the references in UK ETS legislation to the Renewable Transport Fuel Obligation (RTFO) sustainability criteria that are relevant to the eligibility of sustainable aviation fuels
- amendment to the Activity Level Changes Regulation due to the 2020 COVID year
- operational amendments to the UK ETS included in Chapter 9 of the consultation, including minor permitting, monitoring, reporting and verification (PMRV) amendments, and a window for hospitals and small emitters to re-enter the main scheme
Detail of feedback received
We spoke to and received responses from over 300 organisations, representing a wide range of stakeholders from:
- energy, industrial and aviation sectors
- non-government organisations (NGOs)
- academia
- advocacy groups
- UK Climate Change Committee (CCC)
Original consultation
Consultation description
The UK ETS Authority – made up of the UK government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland – is seeking stakeholder views on proposals to develop the UK ETS which operates across England, Scotland, Wales and Northern Ireland.
Audience
This consultation is open to all, but we expect it to be of particular interest to:
- individual companies and representatives of industrial, power and aviation sectors with obligations under the UK ETS
- environmental groups
- individual companies and representatives of maritime, waste, greenhouse gas removals and agricultural sectors
To note, this consultation does not apply to NI electricity generators who participate in the EU ETS by virtue of the Ireland / Northern Ireland Protocol.
Contents
Chapter 1 sets out proposals for changes to align the UK ETS cap and trajectory with our net zero target.
Chapter 2 considers the role of Free Allocation policy as a carbon leakage mitigation tool in the context of the net zero aligned cap. It also puts forward potential improvements to the current Free Allocation regime based on stakeholder views expressed in response to the 2019 consultation on carbon pricing and the call for evidence on free allocation in 2021.
Chapter 3 sets out proposals for bringing in unallocated allowances and/or the flexible share to the market.
Chapter 4 calls for evidence on potential drivers of evolving market conditions in the UK ETS and objectives for market stability policy as the scheme evolves.
Chapter 5 sets out the scope of the review into UK ETS aviation policy. This includes proposals on the future of aviation free allocation, considering responses to the 2019 consultation on carbon pricing, the 2021 call for evidence, and UK government commissioned economic research. It also considers how the use of Sustainable Aviation Fuels (SAFs) could be incentivised under the UK ETS and options for expanding the coverage of the scheme within the aviation sector.
Chapter 6 sets out proposals and calls for evidence on possible changes to the rules for sectors currently covered by the UK ETS to ensure more greenhouse gas emissions are covered by the scheme.
Chapter 7 sets out proposals to expand the scope of the UK ETS to the domestic maritime sector and calls for evidence on expanding the UK ETS to include waste incineration and energy from waste.
Chapter 8 calls for early views on the incorporation of greenhouse gas removal (GGR) into the UK ETS and the monitoring, reporting and verification requirements necessary to address greenhouse gas emissions in the land use and agriculture sectors. We do not propose expanding the UK ETS to agriculture.
Chapter 9 sets out proposed amendments to support effective operation of the UK ETS by addressing a number of operational issues identified during the development of policy and legislation for the scheme.
Your data
Please note that your responses will be shared with members of the UK ETS Authority as well as the UK government.
Read the BEIS consultation privacy notice.
Analytical annex
The analytical annex provides an overview of the factors influencing the impacts of the consultation proposals. It does not reflect the full evidence base on which decisions will be taken, nor the full evidence base on which proposals have been developed. It is not a formal impact assessment. We will seek to gain further evidence as part of this consultation.
Aviation study: Impacts of carbon pricing on the UK aviation sector
Frontier Economics have published a study - Impacts of carbon pricing on the UK aviation sector - commissioned by the Department for Transport and Department for Business, Energy and Industrial Strategy.
Related content
The UK ETS Authority and regulators have published guidance for existing scheme participants, which is regularly updated.
Documents
Last updated 25 July 2023 + show all updates
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Added note on implementing legislation.
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Added main government response and related impact assessment.
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Early partial government response published on proposals that require implementation via legislation ahead of the 2023 scheme year - see updated page text for details.
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First published.