The UK Emissions Trading Scheme Authority has announced a package of reforms to tighten limits on industrial, power and aviation emissions from 2024.
Ambitious Climate Goal
UK power and industrial sectors to trailblaze the way to decarbonisation, as a tighter cap confirmed for emissions from selected high energy industries that will set a path to the country’s ambitious climate goals. Today a package of reforms has 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.
The scheme – which has been in place since 2021 – puts a limit on the total amount of greenhouse gasses 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. The reforms announced build on the success of the UK ETS so far, increasing ambition while managing the transition in a way that supports affected industries. 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.”
The UK ETS was launched in 2021 to replace the UK’s participation in the EU ETS. The scheme incentivises decarbonisation through a process of buying and selling emissions allowances, which companies must obtain for every tonne of emissions they produce each year. Companies that are successful in reducing their emissions can sell unused allowances to other firms. 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. Carbon leakage refers to the movement of production and associated emissions from one country to another due to different levels of decarbonisation rules, such as carbon pricing and climate regulation.
UK ETS cap
The ambitious range consulted on last year for the UK ETS cap remains consistent with delivering on net zero. Opting for the top of this range will support a smooth transition for participants and enable continued flexibility to mitigate market risks and carbon leakage. In line with prior commitments, the net zero cap will be implemented for 2024.
There will be a smooth transition to the net zero cap – by releasing additional allowances from reserve pots to the market between 2024 and 2027 the UK ETS Authority will ensure that there is no sudden drop in allowance supply between 2023 and 2024. These allowances have already been created in previous scheme years within the overall cap limits, so the strength of overall climate ambition will not be affected.
Maritime Transport Added To ETS
For the first time domestic maritime transport, waste incineration and energy from the 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 scheme will be applicable to large maritime vessels only, of 5000 gross tonnage and above. These changes are being announced now to provide operators with time to prepare and ensure a smooth transition for affected businesses. 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.
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