Update on the Emissions Trading Scheme
The UK Emissions Trading Scheme (ETS) was designed to set a limit on carbon emissions for specific sectors, adopting a ‘polluter pays principle’, where polluters are effectively taxed on emissions to encourage decarbonisation. In May 2024, the Department for Energy Security and Net Zero (DESNZ), opened up a consultation to consider the expansion of the scope of the scheme to include the waste sector from 2028 and they have now published their interim response to the consultation: UK Emissions Trading Scheme Scope Expansion to Waste.
If delivered correctly, the UK ETS expansion to the waste sector could initiate behaviour changes which encourage decarbonisation and support the development of a circular economy. However, the impacts of expanding the UK ETS to the waste sector will be deep and wide ranging given the ever-tightening carbon budgets.
In the coming months, we’ll continue to engage with the government to stress the need to defer the full inclusion of waste into the UK ETS, and establish what a phased approach could practically entail. Deferring the date and delivering a phased approach will help avoid the financial strain placed upon Local Authorities and businesses.
Read on for our outline of the key outcomes of the Authority's interim response and what they mean for you, and how Veolia can help you to get ahead of the legislation by decarbonising your waste.
What Does the Inclusion of Waste Mean for You?
Commercial Businesses:
Commercial waste producers will need to consider additional steps to minimise the fossil carbon content (for example, plastics) in their waste streams to reduce their ETS liability.
Veolia can support you with tailored waste management solutions to reduce your emissions and therefore your costs.
Local Authorities:
It is clear that the full inclusion of waste into the UK ETS is not realistic for local authorities, with the price of ETS allowances potentially doubling by 2030.
The government rightly acknowledges these financial challenges and has committed to proposals to support them with the impact of ETS costs. More details are expected soon.
What We Know About ETS Now:
1. No Fixed Date for Inclusion
What’s happening?
The UK ETS Authority has removed any date specification for the full inclusion of the waste sector into the UK ETS, originally planned for 2028. Instead, a voluntary Monitoring, Reporting, and Verification (MRV) period will begin in January 2026 for waste incineration facilities, though there is no specified end date for the voluntary MRV period.
The MRV is based on the Small Waste Incineration Plant throughput threshold which has a capacity of less than 3 tonnes per hour of non-hazardous waste or less than 10 tonnes per day of hazardous waste. High-temperature hazardous waste incineration, up to 1,100°C, with specific waste compositions, is exempt.
MRV process:
Operators of installations can apply for a Voluntary Monitoring Plan (not a permit) and submit emissions reports. The approach to MRV (e.g., Continuous Emissions Monitoring Systems (CEMS), Carbon-14 testing, or emissions factors) is still under review. Total costs of MRV to the sector in 2026 are estimated to reach over £8m.
Our role:
The lack of a fixed date for inclusion only underscores the need for proactive decarbonisation planning. As we participate in the MRV period to ensure the sector gathers high quality data on your waste streams, we will continue to engage with the government to encourage a deferred entry date and a phased approach via free allowances to help reduce your financial burden.
2. Integrating Greenhouse Gas Removals (GGRs)
What’s happening?
Greenhouse Gas Removals (GGRs) offer opportunities to offset emissions through verified carbon sequestration, potentially reducing future compliance costs.
The Authority released a decision for GGRs, which are set to be integrated into the UK ETS by the end of 2029, with MRV standards aligned to developing UK frameworks.
- Only UK-based removals will qualify for allowances. These GGR allowances will replace existing UK ETS credits on a 1:1 basis.
- A minimum storage period of 200 years is required, with liability on operators for any carbon release.
- Woodland removals are still under review, with a decision expected later this year, while peatland restoration has been ruled out.
What's Next?
What is needed now is a clear plan to support the differentiation on allowances, supporting GGR credits. Certain types of GGRs will be more effective than others, such as through their permanence. This should result in those allowances gaining a premium over others to demonstrate their higher quality.
Our role:
At Veolia, we support stringent Monitoring, Reporting, and Verification standards and encourage transparency for GGRs.
With our expertise in carbon capture and storage technologies we can help you explore GGR opportunities as part of your decarbonisation strategies.
Next Steps
We’re reviewing technical annexes and participating in government-hosted meetings to gain further clarity and represent our customers’ best interests.
Whilst we’re working with the government to stress the need to defer the full inclusion of waste into the ETS and establish what a phased approach could practically entail, here’s how we can help you in the meantime:
Emissions monitoring:
Guidance on MRV compliance and emissions tracking.
Decarbonisation solutions:
Need some advice?
To discuss how these changes affect your operations or to explore decarbonisation opportunities, get in touch with your Veolia account manager or contact us below:
