UK and EU ETS to link up in new government deal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

The UK and EU have announced new plans to ‘link up’ their respective Emissions Trading Schemes (ETS), an agreement made during the UK-EU “Reset” Summit in London on 19th May. The agreement forms part of a series of planned ‘link ups’ between the UK and EU in attempts to foster greater collaboration moving forward.

But what, then, could this mean for the UK-ETS, coming into force in 2028, and especially for the Energy from Waste sector?

As the UK government moves closer to aligning its Emissions Trading Scheme (ETS) with that of the European Union, the implications for carbon-intensive industries are coming into sharper focus.

About UK-ETS and its impact on the EfW sector

Among those most affected is the Energy from Waste (EfW) sector—a cornerstone of the UK’s waste management and low-carbon energy strategy.

While the prospect of ETS alignment brings both opportunities and challenges, it could ultimately serve as a catalyst for innovation and long-term sustainability in the industry.

The ETS is a market-based mechanism designed to reduce greenhouse gas emissions by placing a price on carbon. Linking the UK and EU schemes would create a larger, more liquid carbon market, enabling cross-border trading of emissions allowances. For EfW operators, this could mean greater price stability and a more predictable regulatory environment—both of which are crucial for long-term infrastructure investment.

However, the inclusion of EfW in the UK ETS, expected in 2028, introduces a new layer of complexity.

EfW facilities, which convert residual waste into energy, are inherently carbon-intensive due to the fossil-based content in mixed waste streams.

Unlike other sectors, EfW operators have limited control over the composition of the waste they process, making emissions reductions particularly challenging without upstream interventions.

The potential financial impact

One of the most pressing concerns is the potential financial impact. Industry estimates suggest that gate fees—the charges levied for waste disposal—could rise by as much as 50% under the ETS. This could translate into hundreds of millions of pounds in additional costs for local authorities and waste management providers, potentially straining public budgets and slowing progress on waste infrastructure projects.

The Impact of the EU-ETS so far

Emissions Reduction: in 2024, emissions under the EU-ETS decreased by 5%, bringing levels approx. 50% below 2005 figures, which aligns well with the EU's 2030 target of a 62% reduction in overall emissions.

European Union Allowances: in 2024, the average price of European Union Allowances (EUA) was €65.22, starting at €73.17 on January 2nd and closing at €70.95 on December 31st.

Revenue Generation: in 2023, the EU ETS generated a total of €43.6 billion, which made a significant contribution to European climate initiatives and innovation funds on the continent.

UK-ETS: driving innovation in the waste sector?

Yet, there is a silver lining. The ETS could act as a powerful incentive for innovation. By placing a tangible cost on carbon, it encourages investment in technologies such as carbon capture and storage (CCS), advanced plastics separation, and chemical recycling. These innovations not only reduce emissions but also align with broader circular economy goals.

Potential Impact of Linking ETS

Price Convergence: linking the EU-ETS and UK-ETS could help to harmonise carbon prices, which would in turn reduce the risk of market distortions and ensure fair competition.

Revenue Stability: a unified market could enhance revenue predictability (stability) for both the UK and EU, which would support climate investments.

Export Competitiveness: UK exporters could avoid additional CBAM-related costs, as mentioned previously, which would help in maintaining competitiveness in the EU market.

Regulatory Alignment: differences in ETS design and implementation between the UK and EU may require extensive negotiations to ensure compatibility.

Political Considerations: aligning policies post-Brexit may face domestic political hurdles, with varying interests among stakeholders.

Implementation Timeline: establishing a linked ETS could be a lengthy process, potentially taking years to finalise in reality.

What the EU-UK alignment could mean for the sector

Moreover, aligning with the EU ETS could shield UK exporters from the EU’s Carbon Border Adjustment Mechanism (CBAM), which imposes tariffs on imports from countries with weaker climate policies. This exemption could save UK industry hundreds of millions annually, reinforcing the economic case for alignment.

The key to success lies in policy design. If the ETS is implemented in a way that fairly reflects the carbon content of waste and reinvests revenues into decarbonisation efforts, it could transform the EfW sector from a perceived environmental liability into a driver of low-carbon innovation.

In this light, the alignment of the UK and EU ETS should not be seen as a threat, but as an opportunity—one that, if managed wisely, could position the UK’s EfW sector at the forefront of sustainable waste and energy solutions.