On 18 December 2023, the UK Emissions Trading Scheme (UK ETS) Authority, comprised of the UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environmental and Rural Affairs for Northern Ireland, published two consultations on the UK ETS – one on future markets policy and one on the free allocation review.

Consultation on future markets policy

The UK ETS Authority is reviewing ETS markets policy to ensure that it remains fit for purpose and is effective in managing the risks faced by an established and maturing scheme. The intention is that this will help to maintain stable and effective market conditions that will continue to incentivise decarbonisation in the traded sector.

The consultation seeks views on:

  • Whether the UK ETS Authority has identified the most significant risks to effective market functioning.
  • The suitability of different policy options to address the risks identified.
  • How individual market stability policies should be designed to most effectively address market risks while minimising intervention and disruption in the market.

While the future markets policy consultation is open to all, the UK ETS Authority notes that it will be of particular interest to individual companies and representatives of industrial, power and aviation sectors with obligations under the UK ETS; ETS market traders; financial institutions and investors; environmental groups; and individual companies and representatives of maritime, waste greenhouse gas removals and agricultural sectors.

Consultation on free allocation review

In its free allocation consultation, the UK ETS Authority is seeking views on proposals to alter free allocation methodology for stationary sectors to better target those most at risk of carbon leakage and ensure that free allocations are fairly distributed.

The consultation will broadly focus on four key areas:

  • How the UK ETS Authority accounts for emissions and activity.
  • Benchmarks.
  • The carbon leakage list.
  • Additional factors the UK ETS Authority might want to introduce to free allocation methodology.

Although the free allocation consultation is also open to all, the UK ETS Authority notes that it will be of particular interest to individual companies and representatives of industrial and power sectors with obligations under the ETS, and environmental groups.

Next steps

Both consultations close on 11 March 2024.