• New emission limits confirmed for power, energy-intensive industries and aviation, from 2024
• Emissions caps will be extended to more UK sectors – inland shipping and waste – boosting the UK’s global leadership position in decarbonisation.
• Gradual transition for industries as they take the next step towards decarbonisation, with changes being phased and measured

UK industries and energy will be at the vanguard of decarbonisation, as tighter limits have been confirmed on emissions from select high energy sectors that will provide a path to the country’s ambitious climate goals.

A package of reforms has been announced today by the UK Emissions Trading System (UK ETS) – a joint body comprising the UK Government, the Scottish Government, the Welsh Government and the Department of Agriculture. , Environment and Rural Affairs in Northern Ireland which runs the scheme, has announced a package of reforms. .

The plan – in place from 2021 – sets limits on the total amount of greenhouse gases that the aviation, energy and other energy-intensive sectors can emit. This incentivizes industries to move away from expensive fossil fuels and encourages them to cut their carbon footprint by investing in energy efficiency and cleaner or renewable technologies that can increase safety. energy security.

The reforms announced today build on ETS UK’s success to date, raising ambitions while managing the transition in a way that supports affected industries.

From next year, these industries will be required to reduce emissions at the rate necessary to reach the net zero target – sending a clear signal to the industry that investing in long-term decarbonisation will help the Kingdom. The UK maintains its leading position in the world in reducing carbon emissions.

To facilitate this transition, the cap will be set at the top of the advised range, in line with net zero – allowing for maximum flexibility across industries. Additional subsidies will also be made available to the market from 2024 to 2027, while the current free allocation of subsidies to the industry is also guaranteed until 2026, for continued protection. them from international pressure.

The Agency also announced today that the UK ETS will be expanded to cover more sectors – inland shipping from 2026 and waste from 2028 – while rolling out the phase-out. Free carbon subsidies for aviation by 2026 and support for investment in new Greenhouse Gas Removal Technology.

In a joint statement, UK ETS Ministers, including Lord Callanan, Julie James MS, Maiiri McAllan MSP and Gareth Davies MP said:

With the recent increase in energy prices, it is more important than ever that we accelerate the transition from expensive fossil fuels to greener and safer energy.

Our UK emissions trading scheme, together with other interventions, forms part of a broader strategy to provide a long-term framework to encourage UK industries to UK decarbonisation – seize the huge opportunities arising from the rapidly expanding clean energy sector and provide certainty that industries need to invest in new green technologies.

The decisions made here will not only put us on the path to net zero, but will also support key industries on the path towards long-term sustainability.

UK ETS is launched in 2021 to replace UK participation in EU ETS. The plan encourages decarbonisation through the buying and selling of emissions allowances that companies must achieve for each ton of emissions they generate each year. Companies that are successful in reducing emissions can sell unused subsidies to other companies.

ETS supports businesses in sectors that face significant competition abroad with free emission allowances, to ensure their decarbonization efforts are not undermined by competitors. high carbon content weakens – a risk known as carbon leakage. Carbon leakage refers to the movement of production and related emissions from one country to another due to different levels of decarbonization rules, such as carbon pricing and climate regulation. .

Also announced today was the decision to keep support through free grants at current levels through 2026, to give industries certainty about the level of support available in the medium term.

The agency acknowledges that a comprehensive set of policies covering carbon financing, regulation and pricing is needed to deliver the decarbonization we need this decade and beyond.

UK ETS only

The ambitious range advised last year for the UK ETS cap remains consistent with the distribution at net zero. Top picks in this range will aid in a smooth transition for participants and allow continued flexibility to minimize market risks and carbon leaks. In line with previous commitments, a net zero cap will be implemented for 2024. There will be a smooth transition to a net zero cap – by releasing additional subsidies from the project pots. stocks to the market between 2024 and 2027, the UK ETS Authority will ensure that there is a supply of subsidies that do not drop dramatically between 2023 and 2024. These grants have been created out in previous planning years within the overall limit, so the strength of the overall climate ambition will not be affected.

Marine and waste shipping fields added to ETS

For the first time, inland shipping, waste incineration and energy from the waste sector will be added to the scheme. This is in line with commitments to include other high emission sectors in the UK ETS and will encourage companies in those sectors to cut emissions and invest in cleaner alternatives. . This program will only apply to large ocean-going ships, with a gross tonnage of 5,000 or more. These changes are currently being announced to give operators time to prepare and ensure a smooth transition for affected businesses. ETS will expand to cover the inland shipping sector from 2026, as well as incineration and waste from the energy sectors from 2028. This will be further consulted on implementation details and phases. Initial report paragraphs for the waste sector.

Airline free allocations will be phased out

In another move towards decarbonizing the economy, the UK’s ETS Authority today announced its decision to phase out the airline free allocation by 2026. This decision was made based on evidence. evidence of minimal risk of carbon leakage, meaning ETS aviation emissions are hard to replace as a result of ETS UK. Instead, airline businesses need to buy subsidies for every ton of carbon emitted under the scheme. To help aircraft operators prepare for this transition, free allocations will continue as planned in 2024 and 2025 through 2026.

Eliminate greenhouse gas

The agency has also announced its decision that the UK ETS is a suitable long-term market for Greenhouse Gas Removal (GGR) technology, in a move to support investment in critical technologies to meet net zero level. Bringing GGR technologies to the UK ETS will spur early investment in new technologies – such as Direct Air Capture, which removes carbon emissions directly from the atmosphere for storage in rocks below the surface. earth surface. The UK ETS could also provide a suitable long term market for high quality Nature based GHG Removals, subject to further consideration.

Editor’s Note

• The UK ETS Authority conducted consultations on the changes to the UK ETS between 25 March and 17 June 2022 and the full response from the UK ETS Authority is available here. The content of this response has been agreed upon by senior officials in Northern Ireland in the absence of Ministers and their decision to provide agreement will be reported as part of a monthly summary report on the matter. decisions prepared and published by the Executive Office.
• The UK ETS Agency Ministers cited are:
  • Lord Callanan, Minister for Energy Efficiency and Green Finance, DESNZ
  • Julie James MS, Minister for Climate Change, Welsh Government
  • Maiiri McAllan MSP Cabinet Secretary for Transport, Net Zero and Just Transition, Government of Scotland
  • Gareth Davies MP, Treasury Secretary
• In addition to support through the UK ETS free allocation, the UK Government goes further by helping industries reduce their emissions through the Industrial Energy Transition Fund (IETF) and IETF Scotland combined – with over £500 million available to help industries reduce emissions and energy bills.
• The Scottish Industrial Energy Transition Fund (SIETF) is one of the Scottish Government’s support for industrial decarbonisation. SIETF co-invests with various Scottish manufacturers to reduce energy costs and emissions through increased energy efficiency and deep decarbonisation.

Recently, the UK Government announced £80 million to put businesses on a path to revolutionizing their industry with cleaner energy sources – such as hydrogen and biomass. This funding – part of the UK Government’s £1 billion Net Zero Innovation Portfolio – aims to reduce the UK’s overall energy needs by 15% by 2030, in addition to the ambition is the UK moving towards greater energy independence.