UK proposes tighter caps on greenhouse gas emissions in path to Net Zero

The UK is tightening limits on greenhouse gas emissions from the power sector, energy-intensive industries, and aviation from 2024.

The groundbreaking announcement was made today by the UK Emissions Trading System Authority (UK ETS), reinforcing the nation’s role as a global leader in decarbonisation.

The ETS, operational since 2021, caps the total amount of greenhouse gases that these sectors can emit, steering them away from fossil fuels and spurring investment in energy-efficient and cleaner, renewable technologies.

The latest reforms serve to bolster the ETS’s success, magnifying the system’s ambition while smoothing the transition for industries impacted by the changes.

The new measures signify a clear directive to industries to invest in long-term decarbonisation. To support the transition, the cap will initially be set at the highest level within the net zero range, offering maximum flexibility for industries.

From 2024 to 2027, additional allowances will be made available, while the current levels of free allocation of allowances will be maintained until 2026, protecting industries from international pressures.

Furthermore, the UK ETS’s reach will extend to domestic maritime transport from 2026 and to waste from 2028. The gradual removal of free carbon allowances for the aviation industry will commence in 2026, coupled with an investment drive in novel Greenhouse Gas Removal technologies.

“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,” stated UK ETS Authority Ministers in a joint statement, highlighting the relevance and significance of the strategy.

The UK ETS was established to incentivise decarbonisation via a process of buying and selling emissions allowances.

Businesses successful in reducing their emissions can sell unused allowances, thus providing an additional incentive to cut emissions.

Moreover, the ETS supports businesses facing significant overseas competition with free emissions allowances, guarding against carbon leakage – the risk of higher-carbon competitors undermining decarbonisation efforts.

The addition of the domestic maritime transport, waste incineration and energy from waste sectors to the ETS is a pioneering move, and a first of its kind.

The scheme will apply to large maritime vessels of 5000 gross tonnage and above and will encourage companies to lower emissions and invest in cleaner alternatives.

The phase-out of aviation free allocations will commence in 2026, requiring aviation businesses to buy allowances for every tonne of carbon emitted under the scheme.

In another stride towards meeting net zero, the Authority announced that the UK ETS would bethe ideal long-term market for Greenhouse Gas Removal (GGR) technology.

This move is set to foster investment in critical technologies like Direct Air Capture, which extracts carbon emissions directly from the atmosphere for storage beneath the earth’s surface.

Further considerations are being made regarding the scheme’s potential role in facilitating high-quality nature-based Greenhouse Gas Removals.

The ambitious measures were revealed following an extensive consultation last year. The upper end of the proposed range was chosen for the UK ETS cap to ensure a smooth transition for industries while maintaining flexibility to counter potential market risks and carbon leakage.

The implementation of the net zero cap in 2024 marks the start of an era of increased climate ambition.

The ETS’s extension to new sectors, and the phase-out of free allowances for aviation, are being announced now to afford operators ample time to prepare and ensure a smooth transition.

Detailed implementation and initial reporting for waste sectors will be subject to further consultation.

These decisive reforms highlight the UK’s determination to press ahead with ambitious climate goals, and they illustrate the nation’s position at the vanguard of global decarbonisation efforts.

By offering a robust and balanced framework, the UK ETS is proving instrumental in driving the nation’s industries towards a greener, sustainable future.