The Financial Secretary to the Treasury (Lucy Frazer)

The Government are taking ambitious domestic action to tackle climate change and recently opened a consultation on developing the UK emissions trading scheme (ETS), so the UK can become the world’s first net zero carbon cap and trade market [1] . While domestic action is critical, climate change is a global issue. When the UK took on the COP26 presidency, only 30% of the world was covered by net zero targets—now over 90% of the global economy is committed to net zero. In 2021, the UK placed climate change and nature at the top of the international agenda during its G7 and COP26 presidencies, presiding over the agreement of the Glasgow climate pact, to speed up the pace of climate action.

In parallel, Government are considering domestic action to continue to ensure the integrity of UK action to reduce its carbon emissions against carbon leakage, as our existing carbon leakage protection measures, including free allowances under the UK ETS, evolve to achieve our net zero objectives. This will also ensure that UK businesses are not disadvantaged. Carbon leakage is the displacement of production, and associated emissions, from one jurisdiction to another, due to different levels of carbon pricing and climate regulation across those jurisdictions.

[Source]