UK Emissions Trading Scheme consultation

Views sought on proposed changes to the UK Emissions Trading Scheme to support progress to net zero.

The United Kingdom Emissions Trading Scheme (UK ETS) Authority is inviting the power, aviation and industrial sectors to offer their views on proposed changes to the UK ETS that will ensure it continues to support progress to net zero across the UK. The Authority is a body comprising the UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs (DAERA) in Northern Ireland that jointly runs the scheme.

Companies under the scheme are required to obtain allowances for every unit of carbon they emit. These allowances are traded between participants, generating a carbon price that spurs businesses to invest in cleaner or renewable energy sources and improved energy efficiency.

Across two consultations, the Authority has set out proposals to ensure the scheme’s market continues to facilitate cost-effective decarbonisation for the businesses involved. This includes options for a new mechanism to manage the supply of carbon allowances in the market.

Consultation on Markets Policy

Industries are being asked for their views on a range of potential market policies, including a new Supply Adjustment Mechanism. The Authority proposes introducing this system to help respond to changes in demand within the market that have a long-term impact by amending the amount of carbon allowances available.

The consultation also covers proposals for the Authority to maintain its power to intervene if the carbon price rises rapidly over a sustained period, in what is known as the Cost Containment Mechanism. Other potential measures include maintaining the Auction Reserve Price, which sets a minimum bid level for allowances during auctions – currently at £22.

Find out more about the UK ETS consultation on future markets policy and how to respond.

A Review of Free Allocation

This consultation explores how to better target free allocations of carbon allowances for industries most at risk of carbon leakage – where production and associated emissions are moved from one country to another due to different levels of decarbonisation rules.

The review considers how to improve the free allocation calculation ensuring carbon leakage risk specific to UK industry is accounted for. New proposals will also ensure closed industrial sites do not receive free allocations after they have ceased activity.

Find out more about the UK ETS consultation on the free allocation review and how to respond.

First published 3 January 2024