The UK Emissions Trading Scheme (UK ETS) explained

What is the UK ETS?

The UK ETS sets a cap on the greenhouse gases that covered businesses can emit. The cap is divided into allowances, each worth one tonne of CO2 equivalent (tCO2e). Businesses must hand back one allowance for every tonne they emit.

Allowances are auctioned or given free to some businesses, and can then be traded. A business that cuts emissions can sell spare allowances. One that emits more must buy them.

The scheme began on 1 January 2021, when the UK stopped taking part in the EU ETS. It was set up by the Greenhouse Gas Emissions Trading Scheme Order 2020 (SI 2020/1265). Northern Ireland electricity generators remain in the EU ETS under the Windsor Framework (formerly the Northern Ireland Protocol).

The scheme is run by the UK ETS Authority. That is the UK Government, the Scottish Government, the Welsh Government and Northern Ireland's Department of Agriculture, Environment and Rural Affairs acting together.

Phase I runs to 31 December 2030. Phase II will run from 1 January 2031 to 31 December 2040, and allowances can be banked from one phase to the next.

Who is covered

• Power and industry: power stations and heavy industry, including any site burning fuel in combustion units with a total rated thermal input above 20MW.
• Aviation: UK domestic flights, flights between the UK and Gibraltar, and flights from the UK to the European Economic Area and Switzerland.
• Maritime: ships of 5,000 gross tonnage and above on domestic voyages and in port, from 1 July 2026. Offshore vessels join from 1 January 2027.

Small sites can apply for hospital and small emitter status. Installations with thermal input below 35MW and emissions under 25,000 tCO2e a year can follow emissions targets instead of surrendering allowances.

Waste incineration was due to join in 2028. On 26 August 2026 the UK ETS Authority said this will not happen in 2028 as planned, and a new timeline will follow. The plan included a monitoring and reporting only period from 1 January 2026.

The Authority also aims to bring greenhouse gas removals into the scheme, with integration operational by the end of 2029.

The cap and the auctions

In 2023 the UK ETS Authority set the 2021 to 2030 cap at 936 million allowances, the top of its net zero consistent range. From 1 July 2026, 9,323,546 allowances were added for domestic maritime, so the base caps in the legislation now total 945,364,767.

Auctions are the main way allowances enter the market. They are held on ICE Futures Europe every other Wednesday between 12:00 and 14:00 UK time, with DESNZ acting as the UK Auctioneer.

The 2026 calendar has 25 auctions and just under 53 million allowances. It was raised by 983,000 allowances from 12 August 2026 to reflect the addition of maritime emissions. The remaining 2026 auctions are on 18 November, 2 December and 16 December.

The 2027 auction calendar was published on 21 October 2026. It has 25 fortnightly auctions selling just over 45.5 million allowances, starting on 13 January 2027.

The auction reserve price (ARP) is the minimum price at which allowances can be sold at auction. It rose from £22 to £28 on 8 April 2026. From 1 January 2027 it rises each year in line with the GDP deflator, starting with an increase to £29.01 for 2027, announced on 21 October 2026.

UK carbon prices and the Cost Containment Mechanism

The UK ETS Authority publishes a monthly average carbon price. It is the average end-of-day settlement price of the relevant UKA December futures contract over the month.

The Cost Containment Mechanism (CCM) lets the Authority step in if prices stay high. Since February 2023 it triggers when the monthly average exceeds three times the average of the previous two years, in each of six consecutive months.

The trigger price for November 2026 is £141.21, far above market prices, so the CCM cannot trigger. It last triggered in December 2021 and January 2022, and the Authority chose not to intervene both times.

Free allocation

Some industrial installations receive free allowances to reduce the risk of carbon leakage. Allowances for each year are issued on or before 28 February. Free allocation for aircraft operators was phased out from 2026.

The current allocation period covers 2021 to 2026. The next period runs from 2027 to 2030, moved back a year to line up with the UK CBAM.

Following its Free Allocation Review, the Authority decided to phase out free allocation for sectors covered by the UK CBAM from 2027. The indicative trajectory is nine years, applied only to the relevant sub-installations.

The same factor feeds the UK CBAM rate formula, so the import charge rises as free allowances for UK producers fall.

Compliance deadlines, penalties and public reports

• By 31 March each year: submit a verified emissions report for the previous year.
• By 30 April each year: surrender enough allowances to cover those emissions.
• Maritime: emissions for 2026 and 2027 are surrendered together by 30 April 2028.

Failing to surrender carries a civil penalty of £100 multiplied by an inflation factor for each missing allowance. The factor compares the consumer prices index before the deadline with March 2021.

The UK Emissions Trading Registry holds all allowances. Its public reports page lists account holders and free allocations by operator. It also has a compliance report of emissions and surrenders for 2021 to 2025, and a transaction list released three years after trades.

Regulators are the Environment Agency, SEPA in Scotland, Natural Resources Wales, the Northern Ireland Environment Agency and OPRED for offshore sites.

Carbon Price Support for power generators

Power stations in Great Britain pay a second carbon charge on top of the UK ETS. Carbon Price Support (CPS) is a tax on fossil fuels used to generate electricity, charged through Climate Change Levy and fuel duty.

At Budget 2025 the government said CPS rates will stay frozen at the equivalent of £18 per tonne of CO2.

The government says UK ETS and CPS costs feed into wholesale and retail electricity prices. The Energy Intensive Industries Compensation Scheme gives eligible firms relief for these costs in their electricity bills.

What happens next

• UK CBAM starts on 1 January 2027, alongside the cut in free allocation for CBAM sectors.
• Offshore vessels join the maritime scope on 1 January 2027. See our UK ETS for shipping guide.
• The auction reserve price becomes inflation-linked from 1 January 2027, rising from £28 to £29.01.
• The 2027 auction calendar starts on 13 January 2027.
• Carbon Price Support is removed from April 2028, subject to a future Finance Bill.
• A new timeline for waste incineration is still to be published.
• The UK and EU began negotiations on linking their emissions trading systems after the EU mandate was approved in November 2025.

Sources

1. UK ETS Authority: Participating in the UK ETS (updated 1 July 2026) (checked 10 October 2026)
2. UK ETS Authority: UK ETS policy overview (updated 21 October 2026) (checked 28 October 2026)
3. UK ETS Authority: Taking part in the UK ETS markets (updated 10 November 2026) (checked 11 November 2026)
4. UK ETS Authority: CCM trigger prices and average monthly prices, full table (updated 10 November 2026) (checked 11 November 2026)
5. ICE Futures Europe: Circular 26/109, 2026 revised UKA auction calendar (checked 10 October 2026)
6. UK ETS Authority: Free Allocation Review, main Authority response (26 November 2025) (checked 10 October 2026)
7. UK ETS Authority: Scope expansion, waste (updated 26 August 2026) (checked 10 October 2026)
8. legislation.gov.uk: Greenhouse Gas Emissions Trading Scheme Order 2020, article 52 (checked 10 October 2026)
9. UK Emissions Trading Registry: UK ETS public reports (checked 10 October 2026)
10. DESNZ: Compensation for the indirect costs of the UK ETS and the CPS mechanism, guidance for applicants (checked 10 October 2026)
11. UK Parliament: Written statement HCWS1519, Carbon Price Support (16 April 2026) (checked 10 October 2026)
12. HM Treasury: Budget 2025 overview of tax legislation and rates (checked 10 October 2026)