UK ETS · the Greenhouse Gas Emissions Trading Scheme Order 2020
UK ETS: who is in, the annual cycle and the £28 floor
The UK ETS — the UK Emissions Trading Scheme — caps emissions from power, heavy industry, aviation and, since 1 July 2026, shipping, under the Greenhouse Gas Emissions Trading Scheme Order 2020.
Each covered operator reports verified emissions by 31 March and surrenders one allowance per tonne by 30 April, according to DESNZ’s participation guidance.
It is a trading scheme, not a reporting standard, and it sits beside SECR, ESOS and UK SRS without replacing any of them.
The scheme
Cap and trade, run by four governments
The UK ETS was created by SI 2020/1265 and replaced the UK’s participation in the EU ETS on 1 January 2021.
A cap limits the total greenhouse gas 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 UK ETS Authority is 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 UK, but enforcement is territorial: the Environment Agency, SEPA, Natural Resources Wales, the Northern Ireland Environment Agency, and OPRED for offshore.
The government’s policy overview, updated on 7 September 2026, says the scheme covers the heavy industry, power, aviation and domestic maritime sectors — approximately 25% of UK territorial emissions.
The UK has no instrument called a carbon tax.
The UK ETS is a trading scheme; the Climate Change Levy is a tax on business energy; the UK CBAM is a tax on certain imports.
None of them is a sustainability reporting standard.
Scope
Who is covered, and the routes out
Activities in scope are listed in Schedule 1 (aviation), Schedule 2 (installations) and Schedule 2A (maritime) to the Order.
For installations the most common test is combustion: Schedule 2 Table C covers sites where combustion units with a total rated thermal input exceeding 20 megawatts are operated.
“Exceeding” means exactly 20 MW is outside, and installations whose primary purpose is incinerating hazardous or municipal waste are carved out.
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 35 MW; it reports against targets instead of surrendering allowances.
An ultra-small emitter, at no more than 2,499 tonnes, holds no permit but must monitor its emissions and notify its regulator if it goes over.
Neither status is automatic: each comes from a published list or an application, and the Order states maxima of 24,999 and 2,499, not “25,000 or less”.
Aviation covers UK domestic flights, flights between the UK and Gibraltar, and flights departing the UK to EEA states and to Switzerland; the detail is on UK ETS aviation and maritime.
UK ETS coverage · SI 2020/1265
Covered: combustion units with a total rated thermal input exceeding 20 MW.
At no more than 24,999 tCO₂e and a rated thermal input below 35 MW, the site may apply to be a hospital or small emitter: it reports annual emissions against targets instead of surrendering allowances.
Status is by list or application.
Sources: SI 2020/1265 Sch 2 Table C, Sch 7 paras 1 and 5, Sch 8 para 1; SI 2026/392; DESNZ, Participating in the UK ETS; UK ETS Authority waste update, 26 August 2026.
Indicative only.
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Compliance
Permit, monitor, report, verify, surrender
| By | Task | Who |
|---|---|---|
| 1 January | Scheme year starts; monitoring runs to 31 December under the approved plan | All operators |
| 28 February | Free allowances for the year issued | Registry administrator |
| 31 March | Verified emissions report for the previous year; activity level report and its verification if receiving free allocation | Operator and verifier |
| 30 April | Surrender allowances equal to the previous year’s reportable emissions | Installations and aircraft operators |
| July | Appoint the verifier for this year’s report — the regulators’ recommendation | Operator |
| 30 September | Apply for a site-visit waiver, if needed | Operator |
| 31 December | Notify non-significant monitoring plan changes; monitoring for the year closes | Operator |
Installations need a greenhouse gas emissions permit or a hospital or small emitter permit; aircraft and maritime operators need an emissions monitoring plan.
The installations guidance requires a verifier accredited by the United Kingdom Accreditation Service to ISO 14065 and the Verification Regulation, with a scope covering the regulated activity.
That is where the UK ETS differs most from company reporting: an accredited verifier is mandatory here, while SECR carries no statutory assurance requirement; see GHG verification standards.
Allowances sit in the UK Emissions Trading Registry, and each operator needs an open holding account there to surrender.
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: article 52(2) sets an excess emissions penalty of £100 multiplied by the inflation factor for each allowance not surrendered.
GOV.UK says the penalty applies even if the operator surrenders in full after 30 April, so allowances must be in the account by the deadline, not merely ordered.
Price
The floor is £28; the price is the market’s
Allowances are auctioned fortnightly and traded on the secondary market, according to the markets guidance, so the price moves daily and this page quotes none.
No auction bid below the reserve price is accepted.
SI 2026/214, made on 4 March 2026, replaced £22 with £28 in regulation 6(9) of the Auctioning Regulations from 8 April 2026.
It also inserted a formula: on 1 January 2027 and every 1 January after, the price becomes A(1 + B/100), where A is the current price and B the ONS annual change in the GDP deflator, rounded up to the penny.
If the deflator change is zero or negative the price does not fall, and the Treasury may direct otherwise.
Allowances left unsold at one auction are spread across the following four auctions, up to 125% of their original volumes; above that they go to the market stability mechanism account.
The Cost Containment Mechanism lets the Authority consider intervening if prices are elevated for a sustained period.
A budget that holds £28 flat into 2028 is already wrong, and a page still quoting £22 has been out of date since April.
Two sums from the statute
The reserve price from 1 January 2027
£28 × (1 + 2.5/100) = £28.70, rounded up to the penny.
The reserve price stops auctions clearing below it.
It is not a forecast of the market price, which moves daily.
The excess emissions penalty
1,500 × £100 × 1 = £150,000.00, on top of surrendering the allowances.
CPI1 is March 2021; CPI2 is the month before the month containing the surrender deadline.
The factor is never below 1.
GOV.UK says the penalty applies even if the allowances are surrendered in full after 30 April.
Sources: SI 2021/484 reg 6(9)–(9E), as amended by SI 2026/214; SI 2020/1265 art 52(2), (11).
Inputs are yours; nothing is stored or sent.
The cap
The base is not the cap
Article 22 of the Order sets a base for each scheme year, and SI 2026/392 raised the 2026 to 2030 figures from 1 July 2026 to make room for maritime.
The 2026 base rose from 79,059,690 to 80,063,992, and the 2030 base from 49,320,164 to 51,284,366.
The revised text on legislation.gov.uk still shows the old figures in Table B, listing the substitution as an effect yet to be applied, so read the amending Order.
Article 20 then caps the allowances created in a year at the base multiplied by the 2026–2030 hospital and small emitter reduction factor, a formula computed from 2021–2023 verified emissions, not a published number.
Reserves — the flexible reserve, the new entrants’ reserve, the auctioning volumes — are carved out within that.
So “the UK ETS cap for 2026 is 80,063,992” is wrong: it is the base, before the factor and the carve-outs.
Free allocation
Settled to 2030, and shrinking for CBAM sectors
Free allocation protects sectors at risk of carbon leakage, and allowances are issued on or before 28 February each year.
An installation in the allocation table submits an activity level report and its verification by 31 March, and a change in activity of more than 15% from historic levels triggers recalculation.
The second allocation period for installations was moved from 2026 to 2027.
The Free Allocation Review response of 26 November 2025 keeps the EU Phase IV carbon leakage list for 2027 to 2030 and current benchmark values for 2027.
Sectors covered by the UK CBAM start losing free allocation in 2027: SI 2026/278 sets the reduction factor at 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.
The Authority’s own caveat is load-bearing: its free allocation policy may change following the outcome of a linking agreement with the EU, so treat 2028 to 2030 as current policy, not fixed.
Shipping
Maritime, from 1 July 2026
SI 2026/392 brought ships of 5,000 gross tonnage and above into the scheme from 1 July 2026, regardless of flag, across three gases: carbon dioxide, methane and nitrous oxide.
Domestic voyages — beginning and ending in UK ports, including the same port — and in-port activity are in scope.
Government and military ships, fish-catching and fish-processing ships, and ferries serving Scottish islands and remote peninsulas are exempt.
Gross tonnage measures a ship’s volume, not its emissions.
Offshore vessels join from 1 January 2027.
A new maritime operator must apply for an emissions monitoring plan within 42 days of its first maritime activity; failing to, or to monitor or report, carries a civil penalty of £20,000 plus £500 a day, capped at £45,000.
The first verified maritime report is due on 31 March 2027, and the first surrender, covering 1 July 2026 to 31 December 2027, by 30 April 2028.
A worked voyage
A 12,000 GT tanker registered in Malta sails Milford Haven → Immingham, berths two days, then sails to Rotterdam.
Milford Haven → Immingham: a domestic voyage, in scope.
Two days at berth in Immingham: in-port activity, in scope.
Immingham → Rotterdam: outside the UK ETS.
Registered outside the UK, so its regulator is the Environment Agency.
What is changing
Phase II to 2040, and waste delayed
The policy overview records the decision, announced in December 2025, to extend the scheme into a ten-year Phase II from 2031 to 2040, with banking of allowances permitted between phases.
The Phase II cap trajectory has not been set.
Waste has moved the other way.
The July 2025 interim Authority response set up a voluntary monitoring-only period 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 Authority confirmed that expansion to waste incineration will not take place in 2028 as originally intended, and that a new timeline will be set out in due course.
Contracts that pass through a 2028 carbon cost need a new trigger tied to the Authority’s future timeline, not to a year.
Every regime’s dates are on the UK sustainability regulation timeline.
The EU
Linking, CBAM and what is not done
The UK ETS is not linked to the EU ETS.
At the May 2025 summit both sides agreed in the Common Understanding that they should work towards a link.
Its 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 the Court of Justice’s role on EU law.
The Council adopted a negotiating mandate on 12 November 2025 and negotiations began in early 2026; no linking date has been published.
The UK Trade and Business Commission’s note on the agreement is commentary on its status, not a source for a date.
The EU CBAM’s definitive phase began on 1 January 2026, and the UK CBAM under Part 5 of the Finance Act 2026 applies to goods imported from 1 January 2027; until a link is in force, both apply in both directions.
The CBAM rate itself is built from UK ETS auction prices, as the UK CBAM page shows.
Reporting
The UK ETS beside SECR, ESOS, UK SRS and CCAs
| Regime | What it requires | Relationship to the UK ETS |
|---|---|---|
| SECR | UK energy use and emissions in the annual report | Separate duty; ETS data can feed it; no statutory assurance |
| ESOS scheme | A four-yearly energy assessment of a large undertaking | Separate duty; ETS data can feed the energy total; participation is not ESOS compliance |
| UK SRS S2 | Climate-related disclosures, Scope 1, 2 and 3 | ETS exposure is a transition risk to disclose |
| Climate change agreements | Energy or carbon targets for a CCL discount | UK ETS-covered energy is excluded from CCA targets |
The UK ETS produces verified, site-level data; company reporting asks for group-level figures on a different boundary, so the numbers rarely match one for one.
A company’s UK ETS sites sit inside its reported Scope 1, but the SECR boundary is the group, not the permit; both measure on the basis in the GHG Protocol, and the inventory itself is covered in carbon accounting.
By reader
What the UK ETS means for three kinds of operator
| You run | What applies | What to do | By when |
|---|---|---|---|
| An industrial or power site | Combustion units with a total rated thermal input above 20 MW, or another Schedule 2 activity; small sites may be hospital or small emitters, or ultra-small emitters | Check the permit and monitoring plan are current, appoint a UKAS-accredited verifier by July, and forecast the allowance shortfall against the £28 reserve price and its uprating | Verified report by 31 March and surrender by 30 April; free allowances by 28 February |
| A ship or aircraft operator | Ships of 5,000 gross tonnage and above on domestic voyages and in UK ports since 1 July 2026; flights within the UK, to Gibraltar, and departing the UK for the EEA and Switzerland | Maritime: apply for a monitoring plan within 42 days of first activity and open a Registry holding account; aviation: check the exemptions each year | First maritime surrender, for 1 July 2026 to 31 December 2027, by 30 April 2028 |
| An energy-from-waste plant | Not in the scheme yet: inclusion in 2028 has been dropped with no new date | Keep any voluntary monitoring-only data verifiable, and do not budget for 2028 allowance costs until a new timeline is published | No compliance date; watch for the Authority’s new timeline |
Where the UK ETS stands
From the start of the scheme to Phase II
| Date | What happened or happens |
|---|---|
| 1 January 2021 | SI 2020/1265 starts the UK ETS, replacing UK participation in the EU ETS |
| 1 January 2026 | Voluntary monitoring-only period for waste incineration begins |
| 8 April 2026 | Auction reserve price raised from £22 to £28 by SI 2026/214 |
| 1 July 2026 | Maritime joins: ships of 5,000 GT and above, domestic voyages and in-port activity |
| 26 August 2026 | Waste incineration will not join in 2028; no new date yet |
| 1 January 2027 | First uprating of the reserve price; UK CBAM begins alongside |
| 31 March 2027 | Verified 2026 reports, including the first maritime reports |
| 30 April 2027 | Installations and aircraft operators surrender for 2026 |
| 30 April 2028 | First maritime surrender, covering 1 July 2026 to 31 December 2027 |
Terms
UK ETS terms, with where each is defined
| Term | Where | Meaning |
|---|---|---|
| Allowance | UK ETS | A UK allowance: the right to emit one tonne of carbon dioxide equivalent, surrendered against verified emissions |
| Cap | art 20 | The total allowances created for a scheme year; the article 22 base is only the starting figure |
| Scheme year | UK ETS | The calendar year over which emissions are monitored |
| Free allocation | Free Allocation Regulation | Allowances given at no cost to installations at risk of carbon leakage, issued by 28 February |
| Auction reserve price | SI 2021/484 reg 6 | The floor below which no bid is accepted: £28 from 8 April 2026, uprated each 1 January from 2027 |
| METS | Service | Manage your UK ETS reporting service: permits, monitoring plans, emissions and activity level reports |
| Operator holding account | Registry | The UK Emissions Trading Registry account from which an operator surrenders allowances |
| Activity level report | Free allocation | The verified annual report of production activity, due by 31 March |
| Hospital or small emitter | Sch 7 | An installation of no more than 24,999 tCO₂e that meets targets instead of surrendering allowances |
| Ultra-small emitter | Sch 8 | An installation of no more than 2,499 tCO₂e, with lighter obligations |
| Emissions monitoring plan | Aviation and maritime | The approved plan under which an aircraft or maritime operator monitors and reports |
| In-port activity | Sch 2A | Emissions at berth in a UK port of call and from movements within it |
Test yourself
Seven UK ETS claims, true or false
Each statement is in circulation, and each answer names the provision or guidance that settles it.
Three of them are numbers that changed in 2026: the floor, the base and the waste date.
For a harder case you can put it to the member agent after creating a free account, or book a free 15-minute call.
UK ETS: true or false?
The UK ETS auction reserve price is £22.
The UK ETS cap for 2026 is 80,063,992 allowances.
A site with exactly 20 MW of combustion input is in the UK ETS.
Surrendering in full on 2 May avoids the excess emissions penalty.
Small emitters are outside the UK ETS altogether.
Waste incineration joins the UK ETS in 2028.
UK ETS participation counts as ESOS compliance for the same energy.
0 of 7 answered.
Nothing you choose is stored or sent.
Frequently asked
The UK ETS, answered
What is the UK ETS?
The UK Emissions Trading Scheme is a cap-and-trade scheme created by the Greenhouse Gas Emissions Trading Scheme Order 2020.
It replaced UK participation in the EU ETS on 1 January 2021.
A cap limits total emissions from covered sectors, and each year operators surrender one UK allowance for every tonne of carbon dioxide equivalent they emitted.
Who is covered by the UK ETS?
Installations in power and heavy industry, including sites whose combustion units have a total rated thermal input exceeding 20 MW; aircraft operators on UK domestic, UK–Gibraltar and UK-departing flights to the EEA and Switzerland; and, since 1 July 2026, ships of 5,000 gross tonnage and above on domestic voyages and in UK ports.
Offshore vessels follow from 1 January 2027.
What happened to the UK ETS in July 2026?
On 1 July 2026 SI 2026/392 extended it to maritime: ships of 5,000 gross tonnage and above, regardless of flag, for domestic voyages and in-port emissions, across carbon dioxide, methane and nitrous oxide.
The same Order raised the base figures used to set the cap for 2026 to 2030.
How do you comply with the UK ETS?
Hold a greenhouse gas emissions permit (installations) or an emissions monitoring plan (aircraft and ship operators), monitor emissions under it, submit a verified annual emissions report by 31 March, and surrender enough UK allowances to cover the previous year’s emissions by 30 April.
The verifier must be accredited by UKAS.
How much is the UK ETS?
There is no fixed price.
Allowances are auctioned fortnightly and traded on the secondary market, so the price moves.
Auctions have a floor: the auction reserve price is £28 per allowance from 8 April 2026, uprated each 1 January from 2027 by the GDP deflator.
Free allocation costs the operator nothing.
What is the UK ETS penalty for not surrendering allowances?
The excess emissions penalty is £100 multiplied by the inflation factor for each allowance not surrendered, under article 52(2) of the Order.
GOV.UK says it applies even if the allowances are surrendered in full after 30 April.
The allowances must still be surrendered.
Is the UK ETS linked to the EU ETS?
No. In May 2025 the UK and the European Commission agreed to work towards a linking agreement, and negotiations began in early 2026.
No agreement had been concluded as at 1 October 2026.
Until one is in force, UK and EU allowances are not interchangeable and both CBAMs apply to goods moving between the two.
Does the UK ETS apply to waste incineration?
Not yet, and there is no date.
A voluntary monitoring-only period for energy from waste began on 1 January 2026 with no legal obligation to take part.
On 26 August 2026 the UK ETS Authority said full inclusion will not take place in 2028 as originally intended and that a new timeline will be set out in due course.
Is UK ETS reporting the same as SECR?
No. The UK ETS is a trading scheme with verified, site-level reports and a duty to surrender allowances.
SECR is a disclosure of energy use and emissions in the annual report, with no statutory assurance requirement.
A company can be in both, and ETS data can feed the SECR figures, but one does not discharge the other.
What is the UK ETS cap for 2026?
The Order sets a base for each year — 80,063,992 allowances for 2026 since SI 2026/392 — but the base is not the cap.
Article 20 multiplies it by a hospital and small emitter reduction factor, computed from verified emissions, and reserves are carved out before the number of allowances created is known.
Sources
Primary sources
Every figure, date and status on this page traces to the instrument’s owner.
Secondary commentary is never the source for a number.
- legislation.gov.ukThe Greenhouse Gas Emissions Trading Scheme Order 2020 (SI 2020/1265)
Scope (Sch 1, 2, 2A), the base and cap (arts 19–22), HSE and USE (Sch 7, 8).
- legislation.gov.ukSI 2020/1265, article 52 — the excess emissions penalty
£100 × the inflation factor per allowance not surrendered; the inflation factor in art 52(11).
- legislation.gov.ukSI 2021/484, regulation 6 — the auction reserve price
£28 from 8 April 2026, uprated each 1 January from 2027.
- legislation.gov.ukSI 2026/214 — Auctioning (Amendment) Regulations 2026
Made 4 March 2026: £22 → £28 and the GDP-deflator formula.
- legislation.gov.ukSI 2026/392 — Extension to Maritime Activities Order 2026
Maritime from 1 July 2026, three gases, new penalties, and the raised 2026–2030 base.
- legislation.gov.ukSI 2026/278 — free allocation amendments
The UK CBAM reduction factor: 0.975 in 2027 to 0.775 in 2030.
- DESNZParticipating in the UK ETS
Who is covered, permits and plans, the 31 March and 30 April deadlines, aviation and maritime scope.
- UK ETS AuthorityUK ETS for installations: how to comply (updated 9 February 2026)
UKAS-accredited verifiers, the compliance calendar, and the late-surrender penalty.
- UK ETS AuthorityTaking part in the UK ETS markets (updated 10 July 2026)
Fortnightly auctions, unsold volumes, the reserve price and the Cost Containment Mechanism.
- UK ETS AuthorityUK ETS: a policy overview (updated 7 September 2026)
About 25% of UK territorial emissions; Phase II 2031–2040.
- UK ETS AuthorityFree Allocation Review — Main Authority Response (26 November 2025)
The EU Phase IV leakage list retained for 2027–2030; the link caveat.
- UK ETS AuthorityUK ETS scope expansion: waste — update of 26 August 2026
Waste incineration will not join in 2028; a new timeline in due course.
- GOV.UKUK–EU Summit: Common Understanding (19 May 2025)
The commitment to work towards linking, and its conditions.