UK ETS: the UK Emissions Trading Scheme

The UK ETS is the UK's emissions trading scheme. It was created by the Greenhouse Gas Emissions Trading Scheme Order 2020 (SI 2020/1265) and came into effect on 1 January 2021, when the UK left the EU Emissions Trading System.

It works on the cap-and-trade principle. A cap limits the total greenhouse gas that covered sectors can emit. The cap is divided into allowances, each worth one tonne of carbon dioxide equivalent, and it falls over time. Operators receive some allowances free, buy others at auction or on the secondary market, and surrender enough each year to cover their verified emissions.

The scheme is run jointly by the UK ETS Authority: the UK Government, the Scottish Government, the Welsh Government and the Northern Ireland Department of Agriculture, Environment and Rural Affairs. The Order extends to the whole of the UK, but day-to-day enforcement is territorial. According to the government's UK ETS policy overview, updated on 7 September 2026, the scheme “currently covers the heavy industry, power, aviation and domestic maritime sectors”, which together are approximately 25% of UK territorial emissions.

Activities in scope are listed in Schedule 1 (aviation), Schedule 2 (installations) and Schedule 2A (maritime) to the Order, with maritime added by the Extension to Maritime Activities Order 2026 (SI 2026/392). The UK ETS Authority's participation guidance summarises who is caught.

Smaller sites have lighter routes. A hospital or small emitter has reportable emissions of no more than 24,999 tonnes CO2e a year and, for combustion in 2026 to 2030, a rated thermal input below 35MW; it reports emissions against targets instead of surrendering allowances. An ultra-small emitter, with no more than 2,499 tonnes a year, needs no permit but must still monitor emissions. Neither status is automatic: it comes from a published list or an application.

Northern Ireland electricity generators remain in the EU ETS under the Ireland/Northern Ireland Protocol. Aviation and shipping have their own detail on scope, exemptions and penalties, set out on our UK ETS aviation and maritime guide.

Compliance runs on a calendar “scheme year”. The obligations are the same in outline for every sector: hold the right authorisation, monitor, report, verify and surrender.

The installations compliance guidance sets out each permit condition. Operators applying for a new permit must do so at least two months before starting, and regulators must determine an application within two months unless they agree a longer period.

Verification is where the UK ETS differs most from company reporting. An accredited verifier is mandatory here, while SECR has no statutory assurance requirement. Our page on GHG verification standards explains ISO 14065 and ISO 14064-3.

Allowances are held in the UK Emissions Trading Registry. Installation, aircraft and (from 1 July 2026) maritime operators each need an open holding account there to surrender. A new maritime operator must apply for an emissions monitoring plan within 42 days of its first maritime activity. Failure to apply for or comply with a monitoring plan, or to monitor or report, carries a civil penalty of £20,000 plus £500 a day, capped at £45,000.

Every UK ETS obligation hangs off the calendar year. The table below follows one installation through the 2026 scheme year and into 2027, using the deadlines in the installations guidance; the aviation and maritime rows come from the participation guidance. The regulators recommend appointing a verifier “by at least July” so the 31 March report is not at risk.

A missed report is not a missed number. If a verified report is not in by 31 March, the regulator determines the emissions itself. A missed surrender costs more: the installations guidance says an operator short on 30 April receives a penalty of £100 per tonne of CO2, multiplied by the inflation factor, and that the penalty applies even if the operator surrenders in full after the deadline. Buying allowances late in April is the most common way to get this wrong, because they must be in the holding account by the deadline, not merely ordered.

The Order sets a “base” for each scheme year in article 22. SI 2026/392 raised the base for 2026 to 80,063,992 allowances to make room for maritime. That figure is not the cap. Under article 20 the base is multiplied by a hospital and small emitter reduction factor, and reserves are carved out, before the number of allowances actually created is known.

How much the UK ETS costs a business depends on the market. Allowances are auctioned fortnightly on ICE Futures Europe and traded on the secondary market, so the price moves daily. The government's guidance on the UK ETS markets sets out the floor and the Cost Containment Mechanism, and notes that allowances left unsold at one auction are spread across the next four, up to 125% of their original volumes. We do not quote a market price here, because any figure is out of date within days.

How the reserve price moves from 2027

The Auctioning (Amendment) Regulations 2026 (SI 2026/214), made on 4 March 2026, replaced “£22” with “£28” from 8 April 2026 and inserted a formula. On 1 January 2027, and on every 1 January after that, the new price is A(1 + B/100), where A is the current reserve price and B is the ONS annual change in the GDP deflator. The result is rounded up to the penny. If the deflator change is zero or negative the price does not fall, and the Treasury can direct otherwise.

The £28 figure is therefore good only until 1 January 2027. A budget that holds the floor flat into 2028 is already wrong, and a page still quoting £22 is out of date since April.

Free allocation protects sectors at risk of carbon leakage. The second allocation period for installations was moved from 2026 to 2027. The free allocation review response of November 2025 keeps the EU Phase IV carbon leakage list for 2027 to 2030. Sectors covered by the UK CBAM start losing free allocation in 2027: the reduction factor is 0.975 in 2027, 0.95 in 2028, 0.9 in 2029 and 0.775 in 2030. Aviation free allocation was phased out from 2026.

Domestic maritime emissions came into the UK ETS on 1 July 2026. The extension applies to ships of 5,000 gross tonnage and above, regardless of flag state, and to three gases: carbon dioxide, nitrous oxide and methane. Gross tonnage measures a ship's volume, not its emissions. Two kinds of activity are in scope, as the participation guidance defines them.

A worked example. A 12,000 GT tanker registered in Malta sails from Milford Haven to Immingham, berths for two days, then sails to Rotterdam. The Milford Haven to Immingham leg is a domestic voyage and is in scope. The two days at berth in Immingham are an in-port activity and are in scope. The leg to Rotterdam is neither and is outside the UK ETS. Because the operator is registered outside the UK, its regulator is the Environment Agency.

The first surrender is unusual. The participation guidance says a maritime operator surrenders allowances for its 2026 and 2027 emissions together, covering 1 July 2026 to 31 December 2027, by 30 April 2028, and then annually by 30 April from the 2028 scheme year. Reports do not wait: a verified report is due by 31 March after every scheme year, so the first falls on 31 March 2027. A new operator must apply for an emissions monitoring plan within 42 days of its first maritime activity; missing that, or failing to monitor or report, carries the £20,000 penalty with its £500 daily addition, capped at £45,000.

The biggest change this year was maritime, covered above. The scheme is also being extended in time. The policy overview records the decision that the UK ETS will run into a ten-year Phase II from 1 January 2031 to 31 December 2040, with banking of allowances permitted between phases. The Phase II cap trajectory has not yet been set. For every regime's dates in one place, see the UK sustainability regulation timeline.

What the waste incineration delay means

Waste has moved the other way. A voluntary monitoring-only period for energy from waste and waste incineration began on 1 January 2026. The Authority's interim response of July 2025set it up with “no legal obligation to participate or penalty for non-participation”, for non-hazardous waste plants above 3 tonnes an hour and hazardous waste plants above 10 tonnes a day. On 26 August 2026 the UK ETS Authority confirmedthat full inclusion “will not take place in 2028 as originally intended”, and that “a new timeline will be set out in due course”.

Pages that still say waste joins in 2028 are out of date. So is the checker at the top of this page if you read it after the Authority publishes a new timeline: it says what the sources said on 28 September 2026.

The UK ETS is not linked to the EU ETS. At the May 2025 summit both sides agreed in the UK-EU Common Understandingthat they “should work towards” a linking agreement. The terms include dynamic alignment of the UK with the relevant EU rules, a UK cap at least as ambitious as the EU's, a UK financial contribution and a role for the Court of Justice on EU law.

The Council adopted a negotiating mandate on 12 November 2025 and negotiations began in early 2026. As the UK Trade and Business Commission noted on 20 July 2026, the agreement is not yet legally binding and the summit expected to conclude it was postponed until after the summer. No linking date has been published.

That matters for carbon border taxes. The EU CBAM definitive phase began on 1 January 2026, and the UK CBAM under Part 5 of the Finance Act 2026 applies to goods imported on or after 1 January 2027. Until a linking agreement is in force, both apply in both directions. Our UK CBAM guide covers the import side.

The UK ETS produces verified, site-level emissions data. Company reporting regimes ask for group-level figures on a different boundary, so the numbers rarely match one for one.

For SECR, a company's UK ETS sites sit inside its reported Scope 1 emissions, but the SECR boundary is the group, not the permit. For the climate standard, see our guide to UK SRS S2, published on 25 February 2026 and available for voluntary use by any entity. Both measure on the basis explained in our GHG Protocol guide.

ESOS is the one most often assumed to be covered. The Environment Agency's ESOS phase 4 guidancesays participation in the UK ETS “does not automatically count as ESOS compliance”; ETS data can be used, but other sites and activities still need collecting. Our ESOS guide covers the Phase 4 duties.

Energy-intensive sites often hold a climate change agreement as well. The CCA guidance excludes UK ETS-covered fuel from CCA targets, so the two schemes do not price the same energy twice. For building the underlying inventory, see our carbon accounting guide.

The same Order lands differently on a steelworks, a ferry operator and an energy-from-waste plant. Pick the description that fits; each tab says what applies, what to do next and by when.

The timeline marks what has passed and what comes next as of the day you read it. Dates with a Bible key are read from the corpus entry that cites the instrument.

AllowanceUK ETS

A UK allowance (UKA): the right to emit one tonne of carbon dioxide equivalent, surrendered against verified emissions.

Capart 20

The total number of allowances created for a scheme year; the article 22 base is only the starting figure.

Scheme yearUK ETS

The calendar year, 1 January to 31 December, over which emissions are monitored.

Free allocationFAR

Allowances given at no cost to installations in sectors at risk of carbon leakage, issued by 28 February.

Auction reserve priceSI 2021/484 reg 6

The floor below which no auction bid is accepted: £28 from 8 April 2026, uprated each 1 January from 2027.

METSService

Manage your UK ETS reporting service: permits, monitoring plans, emissions reports and activity level reports.

Operator holding accountRegistry

The UK Emissions Trading Registry account from which an operator surrenders allowances.

Activity level reportALR

The verified annual report of production activity that free allocation installations submit by 31 March.

Hospital or small emitterSch 7

An installation with no more than 24,999 tCO2e that meets emissions targets instead of surrendering allowances.

Ultra-small emitterSch 8

An installation with no more than 2,499 tCO2e; it monitors emissions but carries lighter obligations.

Emissions monitoring planAviation and maritime

The approved plan under which an aircraft or maritime operator monitors and reports its emissions.

In-port activitySch 2A

Emissions at berth in a UK port of call and from movements within it; in scope for ships of 5,000 GT and above.