The system – designed by the UK Government jointly with
the Scottish Government, Welsh Government and Northern
Ireland Executive – would be a crucial step towards
achieving the UK’s target for net zero carbon emissions
by 2050. It includes plans to reduce the existing
emissions cap by five per cent, going further than the
current EU system.
The new scheme would replace the EU Emissions Trading
System, which the UK will leave at the end of this year
as the transition period ends. The system draws on the
best of the current system that the UK helped to
develop while ensuring it has greater flexibility to
work in the best interests of the UK.
Once a new system is up and running the government
intends to go even further by amending the cap again in
line with its net zero target.
Energy Minister :
The UK is a world-leader in tackling climate change,
and thanks to the opportunities arising as we exit
the transition period, we are now able to go even
further, faster.
This new scheme will provide a smooth transition for
businesses while reducing our contribution to climate
change, crucial as we work towards net zero emissions
by 2050.
Elements of the new Emissions Trading System will be
familiar to operators and is designed to ensure a
seamless transition at the end of the year.
Emissions trading systems work by setting a cap on the
total amount of greenhouse gases that can be emitted
from certain sectors – in the UK’s case by energy
intensive industries such as steel, the power
generation sector and aviation. The cap is reduced over
time so that total emissions fall.
After each year, every covered company must surrender
enough carbon allowances – each representing tonnes of
carbon dioxide – to cover all its emissions, or
additional fines of up to £100 per allowance are
imposed. Carbon allowances can be bought at auction and
traded, and these markets determine their cost (the
‘carbon price’).
Around a third of UK emissions and around 1,000 UK
factories and plants are currently covered by the
EU ETS and will
continue to be covered by the UK system.
The approach to free allocation of allowances under the
new system will be consistent with what operators will
expected under the EU ETS.
The UK would be open to considering a link between a
UK ETS and the
EU ETS, if it suits both
sides’ interests. This is subject to the ongoing trade
negotiations between the UK and EU. In any event, the
UK has robust domestic carbon pricing options including
these emissions trading system proposals, or a Carbon
Emissions Tax.
