UK announces tightened emission caps to aid Net Zero move

The UK is to implement tough new emissions caps for the country’s power and industrial sectors.

A number of new reforms have been announced by the UK Emissions Trading Scheme Authority (UK ETS) – the joint body comprising the UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland that runs the scheme.

It will see a tighter cap implemented for emissions from selected high energy industries that will set a path to the country’s ambitious climate goals.

The scheme, which has been in place since 2021, puts a limit on the total amount of greenhouse gases aviation, power and other energy intensive industries can emit. This incentivises industries away from costly fossil fuels and encourages them to cut their carbon footprint by investing in energy efficiency and cleaner, or renewable technologies, which in turn can boost energy security.

A government spokesperson said the 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 Authority has also announced that the UK ETS will be extended to cover more sectors – domestic maritime transport from 2026 and waste from 2028 – while rolling out a phased removal of free carbon allowances for the aviation industry in 2026 and supporting investment in new Greenhouse Gas Removal technologies.

“From next year, these industries will be required to bring their emissions down at the rate needed to reach net zero goals – sending a clear signal to industry to invest in the long-term decarbonisation that will help the UK to maintain its world-leading position in cutting carbon emissions,” they added.

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 industry has also been guaranteed until 2026, to continue to protect them from international pressures.

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, along with other interventions, forms part of a wider strategy to provide a long-term framework to incentivise UK industries to decarbonise – seizing the huge opportunities that are arising from a rapidly expanding clean energy sector, and providing the certainty that industries need to invest in new green technologies.

“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.”

Under the changes for the first time the domestic maritime transport, waste incineration and energy from waste sector will be added to the scheme.

This is in line 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, the spokesperson explained. The scheme will be applicable to large maritime vessels only, of 5000 gross tonnage and above. 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. This will be subject to further consultation on the details of implementation and an initial reporting period for waste sectors.

Another change will be to phase out aviation free allocations in 2026. This decision is taken in light of evidence of minimal risk of carbon leakage, meaning ETS aviation emissions are unlikely to be displaced as a result of the UK ETS. Instead, aviation businesses need to buy allowances for every tonne of carbon emitted under the scheme. To help aircraft operators prepare for this transition, free allocation entitlement will continue as planned in 2024 and 2025 until 2026.

The Authority has also announced the decision that the UK ETS is an appropriate long-term market for Greenhouse Gas Removal (GGR) technology, “in a move to support investment in technologies that will be vital for meeting net zero”.

“Bringing GGR technologies into the UK ETS will drive early investment in new technologies – such as Direct Air Capture, that extract carbon emissions directly from the atmosphere to store in rocks beneath the earth’s surface,” the spokesperson added. “The UK ETS may also offer an appropriate long-term market for high-quality nature-based Greenhouse Gas Removals, subject to further consideration.”