The UK Emissions Trading Scheme (ETS) will be extended beyond 2030 to 2050, the UK government has today (18 December) confirmed.
This announcement forms part of the UK Emissions Trading Authority’s response to MP Chris Skidmore’s Independent Review of Net Zero (published in January 2023), in which he proposed an enhanced role for the UK ETS in creating a decarbonised economy.
Extending the ETS is expected to provide long-term certainty for companies, encouraging investment in renewable energy sources.
The UK ETS imposes a ‘permission to pollute’ cost, requiring companies under the scheme to obtain allowances for every unit of carbon they emit. These allowances can be traded between participating companies, generating a carbon price.
This carbon price is meant to steadily increase, making it more expensive to pullute and ultimately encouraging businesses to invest in cleaner energy sources.
Consultation opens on UK ETS
In early November Energy UK voiced it’s concern over the UK’s “weak and volatile” carbon price as, despite the UK ETS’ early success, prices have crashed to historic lows in recent months.
UK ETS prices
According to the trade association, the UK ETS auctions raised £1 billion less between April and the beginning of October 2023, than they would have done had prices remained at 2022/2023 levels.
This downward trend will continue into the beginning of next year as the government recently confirmed that the carbon price for the UK ETS from 1 January 2024 will be £64.90 down from £83.03 as set on 1 January 2023.
To help optimise the UK ETS, the UK government has today opened two consultations for views on ways to improve the scheme, promote market stability, and support businesses in their net zero transition.
The consultations include proposals set out by the UK ETS Authority to help ensure the scheme facilitates cost-effective decarbonisation for businesses. These proposals include options for a new mechanism to manage the supply of carbon allowances within the market.
Additionally, part of the UK ETS includes the distribution of free carbon allowances for energy intensive industries participating in the scheme; the consultation has asked for views on how best to calculate the allocation of these free allowances.
The consultation also includes proposals to ensure the UK ETS Authority can intervene is carbon process rise too rapidly, such as maintain the Action Reserve Price (currently set at £22) which provides a minimum bid level for allowances during auctions.
Both consultations will run for 12 weeks until 11 March 2024, with all participants of the UK ETS and wider organisations, invited to contribute.
In a joint statement, UK Emissions Trading Scheme Authority ministers, including Lord Callanan, said: “The UK Emissions Trading Scheme is a cornerstone of our climate policy. Continuing its success means giving industries confidence to invest in decarbonisation.
“Today’s plans form the next step in developing the scheme so it can continue to enable the transition to net zero for industries across the UK alongside lasting economic growth.”