MS, Deputy First Minister and Cabinet
Secretary for Climate Change and Rural Affairs: This Written
Statement corrects an error in my Written Statement of 7
February, where I outlined changes to the UK Emissions Trading
Scheme.
On 30 January 2025, the UK Emissions Trading Scheme (UK ETS)
Authority (comprising of the Welsh Government, the UK Government,
the Scottish Government, and the Northern Ireland Executive),
published a Response to the UK_ETS_Authority
Technical_consultation_September_2024(Hereinafter:
Technical and Operational).
Additionally, on 12 February 2025, not 5 February as previously
indicated, “The Greenhouse Gas Emissions Trading Scheme
(Amendment) (No. 2) Order 2025” (hereinafter: the
Order) will be presented to the Senedd, which will allow for
these changes. The Order also implements the changes confirmed in
the Authority Response to the Moving_the_UK_ETS_Second_Free_Allocation_Period_Consultation,
published in December 2024.
In September 2024, the UK ETS Authority published the targeted
Technical and Operational consultation that proposed three
technical amendments to the scheme. The first was to make it a
requirement on the UK ETS Authority to publish details of all
transfers of allowances between accounts in the UK ETS Registry
(other than those between UK ETS Authority accounts) annually,
after a three-year delay. The second proposal was to make the
sharing of UK ETS data between government departments and with
the Climate Change Committee (CCC) possible for the purposes of
policy development. The final proposal was related to the
ultra-small emitters (USE) aspect of the scheme, which includes
emitters with less than 2,500t CO2e annual emissions.
Currently, a regulated activity must begin on or before 1 January
2021 to be eligible for USE status for the 2026-2030 period of
the scheme. The consultation proposed amending this to allow
operators who began operations between 2 January 2021 and 1
January 2024 to apply for USE status for the 2026-2030
period.
Stakeholder responses were mostly in favour, with some
disagreement towards specific aspects of the proposals due
to concerns over commercial data sensitivity and
whether a non-disclosure agreement was sufficient to protect UK
ETS information. However, there will be a high bar for data
sharing and other processes, such as anonymising the data where
appropriate, will be in place to help mitigate these concerns.
These changes will overall contribute to improved policy
development across Government and will reduce administrative
burden on (those which are likely to be) small
businesses. The Response therefore confirms the Authority's
intention to move forward with the changes.
The Order also implements changes relating to allocation periods
for free allocations of allowances in the scheme. As announced in
the UK Emissions Trading
Scheme: Moving the UK ETS Second Free Allocation
PeriodAuthority Response in December 2024, the UK ETS
Authority has confirmed the intention to delay making changes to
free allocation policy from the initial target year of 2026, to
2027. Free allocations are UK ETS allowances, provided for
free to industries who face competition globally from competitors
based in countries with weaker climate change mitigation policy
(a negative outcome known as carbon leakage). Free allocations
are currently the primary policy lever in mitigating carbon
leakage, and the changes are being made to make allocations
better targeted within the UK context.
The delay to the changes was recommended as it would provide
additional time for careful consideration of stakeholder views
and policy development in what is a complex and challenging area,
as well as align any changes with the UK Governments plans to
introduce a UK Carbon Border Adjustment Mechanism (CBAM) in
2027.
Through the UK ETS, we must encourage decarbonisation in a way
that does not risk disadvantaging Welsh industry and supports
their decarbonisation pathways to a net zero world. The
publications referenced and amendment Order represent a crucial
next step in improving policy making through better data-sharing
and a more considered approach to free allocations within the UK
ETS.
