The UK Emissions Trading Scheme (UK ETS) is changing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

In line with the UK’s ambitious Net Zero targets - achieving zero-carbon by 2030 - the UK Emissions Trading Scheme (UK ETS) is officially changing; the government having issued 2 new industry consultations during the summer to guide the expansion of the scheme to include energy from waste (EfW) and incineration (closed 2nd August) and the inclusion of allowances from greenhouse gas removal (GGR) (closed 15th August).

Following these consultations and a 2-year transitionary period from 2026, full regulatory integration is expected from January 2028.

What’s more, during this 2-year period, emissions will be monitored, reported and verified. However, it’s been said that no obligations to purchase or surrender ETS permits will be expected until the changes come into effect in January 2028.

What is changing in the UK Emissions Trading Scheme (UK ETS)?

It is expected that a number of changes will be implemented as part of UK ETS in 2028, including changes to smaller facilities’ eligibility for Hospital and Small Emitter (HSE) or Ultra Small Emitter (USE) status, subject to emission targets, not the allowance system.

Other expected changes include:

• Waste incineration facilities will only need to purchase and surrender allowances for their fossil emissions, and not biogenic emissions

• By installing GGRs to utilise or store carbon, companies could earn allowances

Future of UK ETS

The UK ETS covers emissions from domestic aviation, and the industry and power sectors, amounting to some 30% of the country’s annual GHG emissions.

There are plans to expand the system over the coming years to cover CO₂ venting by the upstream oil and gas sector, domestic maritime emissions, and energy from waste & waste incineration.

The UK is also looking to introduce a carbon border adjustment mechanism, which would place a carbon price on certain emissions-intensive industrial goods imported to the UK.

The expansion of the system, and the Net-Zero obligations in both 2030 and 2050, means the carbon markets look bullish (positive market sentiment) with the price trend likely to rise as more are obliged to cut carbon or pay carbon taxes for emissions beyond the emission caps imposed that are set to reduce in magnitude periodically.