UK Emissions Trading Scheme: A review of the changes made or proposed in 2025
30 Dec 2025
6 min read
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There have been a number of changes to the UK Energy Trading Scheme (“UK ETS”) either implemented or proposed in 2025. Here we look back on 2025 highlighting some of the key developments for the UK ETS throughout the year.
March 2025
The Greenhouse Gas Emissions Trading Scheme (Amendment) (No.2) Order 2025 (the “Order”) came into force in March and made amendments to the legislation that gives effect to the UK ETS. The Order amends the start of the second allocation period for stationary installations from 2026 to 2027, making 2026 a standalone year. Further changes made by the Order include:
A requirement to publish full details of transactions between accounts in the UK Emissions Trading Registry (the “Registry”);
The addition of some exceptions to the prohibition on disclosure of scheme data to support the development and implementation of related policies; and
An extension to the qualification criteria so that installations with low levels of emissions which started operations between January 2021 and January 2024 can apply to be classed as Ultra Small Emitters during the 2026-2030 period, reducing their UK ETS related administrative burden.
May 2025
The EU and UK hosted a summit in May exploring areas where the EU and UK had the potential to strengthen bilateral cooperation. A subsequent common understanding was announced in the same month, (“Common Understanding”) which (among other things) outlined the EU and UK’s intention to work towards linking the European Union Emissions Trading Scheme (“EU ETS”) and UK ETS.
August 2025
DESNZ published a policy paper which details how the UK Government alongside the Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs for Northern Ireland, together (the “UK ETS Authority”) is working to expand and develop the UK ETS and includes details of the policy aims of the UK ETS, how the scheme works and how it is currently being developed.
November 2025
Maritime sector
In 2024 the UK ETS Authority published a consultation on including emissions from the domestic maritime sector in the UK ETS from 1 July 2026. The final consultation response was published in November. The main decisions include:
- Allowing ‘double surrender’ in relation to the 2026 and 2027 scheme years meaning that the deadline for the first scheme years (between 1 July 2026 and 31 December 2026) will be extended to 30 April 2028.
- There will be a delay in the inclusion of offshore ships within UK ETS until 1 January 2027, in line with EU ETS, reflecting the Common Understanding.
- Compliance will be managed through the Manage your Emissions Trading Scheme (METS) system and the Registry, instead of requiring a Document of Compliance.
- The threshold for inclusion will be set at 5000 gross tonnage (GT), with a review of whether the threshold should be lowered set for 2028.
- There will be a 50% deduction from UK ETS surrender obligation for voyages between Northern Ireland and Great Britain. This is intended to avoid disparity in carbon pricing between the island of Ireland and Great Britain.
- Ferry services to Scottish islands and specific peninsular communities will be exempt, in addition to fish catching and fish processing ships. Both exemptions will be reviewed in 2028.
- Allowances of 9,323,546 will be added to the UK ETS cap, to account for the addition of emissions from the domestic maritime sector.
- The government confirmed that it intends to include emissions from international voyages in line with the EU. It set out its intention to release a further consultation on the inclusion of international maritime emissions in UK ETS.
Alongside the consultation response and in line with the decisions detailed above, the UK ETS Authority published a consultation on expanding UK ETS to include emissions from international voyages to or from a UK port.
The consultation is seeking views on the scope of including international maritime emissions, and how UK ETS can be adjusted to reflect the inclusion of international maritime emissions. The previous consultation published in November 2024 included questions about the future inclusion of emissions from international maritime voyages, where the majority of respondents were in favour but suggested that the UK should wait to align with any measures adopted by the International Maritime Organisation (“IMO”) 2025 Maritime Environment Protection Committee (“MEPC”) session. However, the MEPC delayed adoption of the IMO’s net zero framework in October 2025. The new consultation builds on the 2024 consultation and outlines specific proposals for how the government intends to expand UK ETS to include emissions from international maritime voyages, in line with the Common Understanding, and the delayed adoption of the IMO net zero framework.
The consultation closes on 20 January 2026.
Free allocation and carbon leakage
A combined response to the remaining proposals of the 2023 free allocation review consultation and the 2024 free allocation review carbon leakage consultation was also published in November.
Free allocation - is the practice of distributing a portion of emissions allowances to certain sectors at no cost, rather than requiring them to purchase all allowances via auction. This is primarily done to protect industries at risk of carbon leakage.
Carbon leakage - is the movement of production and associated emissions from one country to another to benefit from lower climate mitigation obligations (such as carbon pricing and climate regulation). The offshoring of greenhouse gas (“GHG”) emissions through carbon leakage undermines global efforts to reduce GHG emissions and achieve global decarbonisation.
The response confirms the implementation of a number of technical changes to the free allocation calculation for the next allocation period from 2027. It also laid the pathway for further reforms aligned with the introduction of the UK Carbon Border Adjustment Mechanism (“UK CBAM”) in 2027. These decisions also align with the Common Understanding.
The UK ETS Authority has decided that:
Operators will be able to choose to have activity data for the years 2020 only or 2020 and 2021 excluded for the purposes of determining historical activity level for the 2027-2030 allocation period.
Current benchmarks for 2027 will be retained, with an intention to adopt EU benchmark values from 2028-2030.
The current list of sectors subject to carbon leakage will remain the same.
The tiering of free allocations of UK ETS allowances for sectors at risk of carbon leakage on the carbon leakage exposure factor or cross-sectoral correction factor will not be introduced.
The phase out of free allocations for sectors that are not at risk of carbon leakage will not be brought forward.
Additional benchmarking methodologies will not be introduced in 2027 but may be reconsidered in future.
Free allocations for sectors covered by the UK CBAM will be gradually phased out from 2027, with the phase out period lasting nine years.
December 2025
Future markets policy
Following publication of the consultation on UK ETS future markets policy in 2023, the government published the response in December, which outlines the final market policy decisions agreed by the UK ETS Authority. The decisions include:
To retain and inflation-proof the Auction Reserve Price (ARP) to maintain its real value and implement an inflation-based increase in its introduction in 2026, after which increasing the value yearly in line with inflation from 2027.
The Cost Containment Mechanism (CCM) will be retained, including the existing design, operation and discretion.
The implementation of a quantity triggered Supply Adjustment Mechanism (SAM) for a standalone UK ETS will be discounted.
Cost Containment Mechanism – provides a tool for the UK ETS Authority to intervene if prices remain elevated for a sustained period. The CCM will be triggered if the average monthly carbon price is more than specific prescribed levels.
Auction Reserve Price – is the minimum price for bids in the UK ETS actions.
Supply Adjustment Mechanism – is a tool intended to change the number of carbon allowances available for auction based on predefined triggers.
Extension to the UK ETS cap beyond 2030
The UK ETS Authority also announced in December via its consultation response that the UK ETS will be extended into a Phase II from 2031 onwards. Further consultations will be published on the specifics of the Phase II cap profile prior to enacting legislation to extend the scheme.
If you would like further information or advice on the potential implications of the developments of the UK ETS scheme on your business, please contact Michael Barlow or another member of our Environment team.
Written by Carys Cox
The UK Emissions Trading Scheme (ETS) came into operation on 1 January 2021. The scheme is a key part of our approach to addressing climate change, setting a limit on emissions from the sectors covered and ensuring an appropriate price is applied to them.