The UK Emissions Trading Scheme (UK ETS) Authority of the UK government announced the launch of a new consultation package on May 23, 2024. This package proposes to extend the UK ETS to new sectors, including waste-to-energy and waste incineration, and to integrate carbon removal activities into the ETS.

The United Kingdom has had its own emissions trading system since January 1, 2021. The UK ETS is one of the key policies implemented by the UK to address greenhouse gas (GHG) emissions and help achieve emission reduction targets.

Launched in 2021 to replace the UK’s participation in the European Union Emissions Trading System, the UK ETS sets a cap on greenhouse gas emissions for major GHG-intensive sectors. The emissions cap is gradually reduced over time to motivate companies to reduce emissions in line with sector climate targets. Organizations receive allowances for each ton of emissions they produce annually. Those that manage to reduce emissions below the set cap can sell their excess allowances to other industry participants in the secondary market, thereby creating a carbon price. This mechanism aims to incentivize organizations to invest in cleaner energy and increase energy efficiency.

The UK ETS targets a 75% reduction in CO2 emissions by 2030 and achieving net zero emissions by 2045.

Currently, the UK ETS applies to the aviation, energy, and industrial sectors. The UK ETS Authority is considering expanding the system to cover more parts of the UK economy. Last year, the Authority announced a series of reforms, including stricter emission caps for existing sectors, and the inclusion of waste-to-energy, waste incineration, and domestic maritime transport.

Under the new waste-to-energy and waste incineration consultation, the UK ETS Authority proposes to include the sector’s CO2 emissions starting from 2026, with a two-year transition period leading to full inclusion by 2028. During the transition period, the sector’s emissions will be monitored, reported, and verified, but there will be no obligation to purchase or surrender UK ETS allowances. The UK ETS Authority stated that the inclusion of the sector would be accompanied by efforts to provide incentives for the adoption of decarbonization technologies.

The UK ETS Authority has also initiated a consultation on how to integrate carbon removal technologies, such as Direct Air Capture (DAC), into the ETS. This consultation aims to help establish a long-term market for Greenhouse Gas Removals (GGR) and to evaluate whether the carbon stored through new woodland creation in the UK can be integrated into the UK ETS.

As part of the consultation, the UK’s independent Climate Change Committee (CCC) emphasized the importance of carbon removal in achieving the UK’s net zero targets. Various studies will be conducted to scale up the policy for integrating carbon removal into the ETS.