The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Amanda Solloway)

The Government and our partners in the devolved Administrations are today delivering on commitments to continue the development of the UK emissions trading scheme (ETS), a key part of our approach to achieving net zero by 2050. The scheme puts a limit on the emissions of the power, industrial and aviation sectors, and requires participants to obtain carbon allowances to cover their emissions. In doing so, it creates a carbon price signal that incentivises investment in decarbonisation.

In July the UK ETS Authority published an ambitious package of reforms to the scheme, to ensure it supports our net zero goals.

Today, building on those reforms, the UK ETS Authority has launched consultations on changes to market and free allocation policies within the scheme. It has also published a statutory review of the scheme’s operation since its launch in 2021, and a joint response to the UK ETS recommendations in the independent review of net zero.

The consultation on free allocation is the final stage of a comprehensive review of this vital area of the scheme. It offers UK industries an opportunity to shape UK ETS policy and ensure the scheme can support them in the transition to net zero.

Industries that face a risk of carbon leakage are supported under the UK ETS through free emissions allowances, to ensure their efforts to decarbonise are not undermined. Carbon leakage refers to the movement of production and associated emissions from one country to another, due to different decarbonisation policies, for example carbon pricing and climate regulation.

Addressing carbon leakage risk to support decarbonisation

Alongside a CBAM, the Government will work with industry to establish voluntary product standards that businesses can adopt to help promote their low carbon products to consumers, and we will seek to develop an embodied emissions reporting framework that could serve future carbon leakage and decarbonisation policies.

The UK ETS Authority has also published a joint response to the independent review of net zero’s recommendations for the scheme. It confirms the authority’s commitment to continuing the UK ETS until at least 2050, and is intended to give businesses in sectors covered by the scheme the policy certainty they need to make the long-term decarbonisation investments.

Finally, the UK ETS Authority has published its first statutory review of the operation of the UK ETS since its launch. The review, supported by independent evaluation, confirms the scheme’s central role in delivering on the UK’s net zero targets, alongside recommendations to enhance its function, such as expansion to new sectors and technical amendments to its operation.

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