Understanding the Latest Changes to the UKs Emissions Trading Scheme

In a bid to enhance the UK's climate policy, the Department for Energy Security and Net Zero has laid out new amendments to the UK Emissions Trading Scheme (UK ETS) with the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025. Here’s what you need to know about this legislative update:

What is the UK ETS? The UK ETS is a key tool in the UK's climate policy, aimed at reducing greenhouse gas emissions. It requires industries to buy allowances for their carbon emissions, thus encouraging a move towards greener practices.

Key Amendments Explained:

1. Allocation Period Adjustment: The start of the second allocation period for the UK ETS has been shifted from 2026 to 2027. This change aims to better align with the introduction of the UK Carbon Border Adjustment Mechanism (CBAM) in 2027. The year 2026 will now be treated as a standalone period with specific provisions for free allocation.

2. Data Transparency: Details of transactions within the UK ETS will be published after a three-year delay, enhancing market transparency. This aligns the UK ETS with international standards and facilitates better market analysis.

3. Policy Support and Data Disclosure: New exceptions have been added to allow the disclosure of scheme data for policy development and to support the statutory functions of the Climate Change Committee. This is crucial for the development of related policies such as the UK CBAM.

4. Support for Small Emitters: The criteria for installations to be classified as Ultra-Small Emitters (USEs) have been extended. Installations that began operations between January 2021 and January 2024 can now apply for USE status, thus reducing administrative burdens for more operators.

Why These Changes? The amendments are designed to ensure that the UK ETS remains effective and aligned with the UK’s broader climate goals, particularly the net-zero targets. By moving the allocation period and enhancing data transparency, the UK government aims to provide more certainty and clearer guidelines for businesses.

Impact on Businesses: These changes are expected to have minimal immediate impacts on businesses, as the free allocation rules for 2026 remain consistent with the current framework. However, they offer a smoother transition for businesses adjusting to the upcoming UK CBAM.

Consultation and Support: The changes follow consultations with stakeholders, who largely supported the amendments. The UK ETS Authority plans to provide guidance to help businesses navigate these new regulations.

Conclusion: These legislative updates are a vital part of the UK’s efforts to curb greenhouse gas emissions and support industries in transitioning to a low-carbon economy. By understanding and adapting to these changes, businesses can better align with national climate goals and contribute to a sustainable future.

For detailed guidance on these changes, businesses can visit the UK government’s official websites or contact the Department for Energy Security and Net Zero.