The UK Emissions Trading Scheme (UK ETS) replaced the UK’s participation in the EU ETS from 1 January 2021. The Government has established the scheme to increase the climate ambition of the UK’s carbon pricing policy and provides continuity of emissions trading for UK businesses. Many of the features and processes in the new UK scheme will be familiar to operators. The UK ETS is established through The Greenhouse Gas Emissions Trading Scheme Order 2020 and Government and devolved administrations will collectively constitute the UK ETS Authority to oversee the scheme.
Emissions trading schemes work on the ‘cap and trade’ principle, where a cap is set on the total amount of certain greenhouse gases that can be emitted by sectors covered by the scheme. This limits the total amount of carbon that can be emitted and, as it decreases over time, will make a significant contribution to how we meet our Net Zero 2050 target and other legally binding carbon reduction commitments.
Within this cap, participants receive free allowances and/or buy emission allowances at auction or on the secondary market which they can trade with other participants as needed. Each year, installations and aircraft operators covered by the scheme must surrender allowances to cover their reportable emissions. The cap is reduced over time, so that total emissions must fall.
The UK ETS will apply to energy intensive industries, the power generation sector and aviation. It covers activities involving combustion of fuels in installations with a total rated thermal input exceeding 20MW (except in installations for the incineration of hazardous or municipal waste). The aviation routes covered by the UK ETS will include UK domestic flights, flights between the UK and Gibraltar, and flights departing the UK to European Economic Area states conducted by all included aircraft operators, regardless of nationality.
If you carry out an activity covered by the UK ETS, you will need a greenhouse gas emissions permit. You may also need:
- a small emitter or hospital permit (if you are classed as a small emitter or a hospital)
- an emissions monitoring plan (if you are an aircraft operator)
Northern Ireland electricity generators shall remain in the EU ETS in line with the Ireland/Northern Ireland Protocol.
In the UK ETS, there will be simplified provisions for small emitting installations and hospitals with emissions lower than 25,000t CO2e per annum and a net-rated thermal capacity below 35MW. These installations will be subject to emissions targets instead of trading allowances. Separate simplified provisions are available to Installations with emissions lower than 2,500t CO2e per annum. The government will release further information for installations in these categories in due course.
Participants in the EU Emissions Trading System (EU ETS) must still comply with their obligations under that system for the 2020 compliance year which ends on 30 April 2021.