The UK ETS is a cap-and-trade system that sets a limit on emissions from particular carbon intensive industries. Participating companies must obtain allowances for each tonne of CO₂ they emit, encouraging them to cut emissions by buying, trading or surrendering allowances.
The UK ETS is changing in line with the UK's net zero climate targets.
Read on to find out what's changing and how this might impact you and your business.
What is changing?
- The Government have issued two industry consultations to guide the expansion of the scheme to include energy from waste (EfW) and incineration (closed 02/08/24), and to include the granting of allowances from greenhouse gas removal (GGR) (closes 15/08/24). In principle, expansion of the UK ETS to waste will incentivise the industry to decarbonise.
- The consultation considers whether energy from waste (EfW) should be included in the ETS.
Waste incineration facilities will only need to purchase and surrender allowances for their fossil emissions, and not biogenic emissions. - Smaller facilities may be eligible for Hospital and Small Emitter (HSE) or Ultra-Small Emitter (USE) status, subject to emission targets not the allowance system.
- By installing GGRs to utilise or store carbon, companies could earn allowances.
When is it changing?
The Government plan future consultations with updates expected, and are not expecting full regulatory integration until at least 2028, with a two year transition from 2026 when emissions will only be monitored, reported, and verified. There will be no obligation to purchase or surrender UK ETS allowances until 2028.
What does this mean for you?
The principles for the changes to the ETS have been set out, meaning we can start to assess the impacts to your business.
- EfW and incineration facilities will be obligated to participate in the ETS from 2028.
- Although some hazardous and clinical waste sites may qualify under the Small or Ultra Small emitter status, Veolia is leading proposals for a full exemption, given their unique disposal challenges.
- Companies that sequester carbon dioxide (to a yet to be established MRV standard), will be able to sell allowances into the ETS carbon market.
- The expanded ETS will not affect contractual carbon trading arrangements on the voluntary market.
What do we know and what is yet to be confirmed?
As consultation is still ongoing for changes to the UK ETS, many of the details and specific processes are yet to be clarified.
Current Knowns | Currently Unknowns |
| UK ETS will only apply to fossil emissions (not biogenic). | Details of Measurement, Reporting, and Verification (MRV) of carbon credits. |
| DESNZ recognises that UK ETS could incentivise heat export via heat networks. | Details of how to calculator the percentage of biogenic/fossil emissions from waste incineration. |
| Waste operators will need to apply for Greenhouse Gas Emissions Permit to participate. | Potential mitigation measures for the Refuse Derived Fuel (RDF) and Solid Recovered Fuel (SRF). |
| The ‘cap’ will be adjusted over time, reducing the number of allowances in line with net zero targets. | How/if the associated costs will be passed to customers or producers. |
| UK ETS will apply to waste-to-fuel activities, including Sustainable Aviation Fuel (SAF) production. | Possibility of factoring emissions based on customer behaviour and content of waste. |
| That GGRs will have a thorough MRV assessment (including permanence) to quality for ETS allowances. | If carbon sequestration from woodland will be included as a Greenhouse gas Removal for ETS. |
Key dates
- December 2023 - Phase one of UK ETS evaluation closes (EU ETS to UK ETS)
- August 2024 - Consultations close
- January 2026 - MRV only reporting (DESNZ will decide if this is mandatory or voluntary)
- December 2026 - Phase two of UK ETS evaluation closes (long term impacts)
- January 2028 - Full inclusion of waste/EfW in the ETS
- January 2028 - Integration of GGRs into ETS
