The UK Emissions Trading Scheme Authority (UK ETS) has announced a package of reforms to tighten limits on energy intensive industries from 2024.
Setting limits on energy-intensive industries, including industrial, power, and aviation, will limit the amount of greenhouse gas emissions they emit and pave the way for the UK to reach zero.
The scheme allows industries to move away from costly fossil fuels. It also encourages them to cut their carbon footprint by investing in energy efficiency and cleaner, or renewable technologies, which can boost energy security.
These reforms build on the success of the UK ETS so far, increasing ambition while managing the transition in a way that supports affected industries.
The UK ETS’ missions and goals
The UK ETS was launched in 2021 to replace the UK’s participation in the EU ETS.
The scheme encourages energy intensive industries to decarbonise by buying and selling emissions allowances, which companies must obtain for every tonne of emissions they produce each year.
The ETS supports businesses in sectors that face significant overseas competition with free emissions allowances to ensure their efforts to decarbonise are not undermined by higher-carbon competitors – a risk known as carbon leakage.
How this scheme accelerates the UK’s journey to net zero
From 2024, energy intensive industries will be required to bring their emissions down at the rate needed to reach net zero goals.
This sends a clear signal to industries to invest in the long-term decarbonisation that will help the UK to maintain its world-leading position in cutting carbon emissions.
To ease this transition, the cap will be set at the highest level of the range consulted on, in line with net zero – allowing maximum flexibility for industries. Extra allowances will also be made available to the market between 2024 and 2027, while the current levels of free allocation of allowances for industries have also been guaranteed until 2026.
The UK ETS scheme will be extended to cover more energy intensive industries, such as domestic maritime transport from 2026 and waste from 2028. Moreover, it will roll out a phased removal of free carbon allowances for the aviation industry in 2026 and support investment in new greenhouse gas removal technologies.
In a joint statement, UK ETS Authority Ministers, including Lord Callanan, Julie James MS, Màiri McAllan MSP, and Gareth Davies MP, said:
“With the recent rises in energy prices, it is more important than ever that we accelerate the transition away from costly fossil fuels, towards greener and more secure energy.
“Our UK Emissions Trading Scheme and other interventions form part of a wider strategy to provide a long-term framework to encourage energy intensive industries to decarbonise.
“The decisions taken here will not only put us on the path to net zero but will also support crucial industries on their path to long-term sustainability.”
Maritime and waste are now classed as energy intensive industries
Domestic maritime transport, waste incineration, and energy from the waste sector will be added to the scheme for the first time.
This aligns with commitments to bring other high-emitting sectors in the UK ETS and will encourage companies in those sectors to cut their emissions and invest in cleaner alternatives.
These changes are being announced now to provide operators with time to prepare and ensure a smooth transition for the affected energy intensive industries. The ETS will expand to cover the domestic maritime transport sector from 2026, as well as waste incineration and waste from energy sectors from 2028.
