The UK proposes extending the emissions trading system to new sectors, such as carbon dioxide removal

The UK government’s Emissions Trading Scheme (ETS) body today announced the launch of a new consultation package proposing to extend the ETS carbon pricing system to new sectors, including energy from the waste and waste incineration sectors, as well as on the inclusion of greenhouse gas removals in the ETS.

Introduced in 2021 to replace the UK’s participation in the EU Emissions Trading Scheme, the UK ETS sets a cap on greenhouse gas (GHG) emissions for key GHG-intensive sectors, which declines over time to incentivize companies to reducing emissions in line with sectoral climate targets, with companies earning allowances each year for every tonne of emissions of the products they produce. Companies that manage to reduce emissions below the upper limit are able to sell emissions allowances on the secondary market to other industry participants, creating a price on carbon emissions and encouraging companies to invest in cleaner energy and better energy efficiency.

Currently, the ETS applies to the aviation, energy and industrial sectors, although the Authority is considering extending the system to cover more of the UK economy. Last year, the office announced a number of reforms of the ETS system, including the introduction of stricter emission limits for current sectors and presenting plans to add energy from waste and its incineration as well as domestic maritime transport to the system.

As part of the consultation on new energy from waste and waste incineration, the Authority proposes to include CO2 emissions from the sector starting in 2028, following a two-year phase-in period starting in 2026. During the phase-in phase, emissions from the sector will be monitored, reported and verified, without any obligation to purchase or redemption of ETS allowances. The authority said the addition of this sector would occur in parallel with other initiatives aimed at providing incentives for the sector to adopt decarbonization technologies.

The Authority has also launched a consultation on the possibility of including UK-developed greenhouse gas removal technologies, such as direct air capture (DAC), in the ETS, which could help create a long-term market for greenhouse gas removal (GGR), and is examining whether stored carbon as a result of the creation of new forests in the UK, it could be included in the emissions trading system. The UK’s independent Committee on Climate Change (CCC) has recognized the importance of GGR in achieving the UK’s net zero targets, according to the consultation, with the Authority instructed to explore the inclusion of GGR in the ETS as part of its policy to scale up the market.

In a joint statement, UK Emissions Trading Authority ministers Lord Callanan, Huw Irranca-Davies MS, Màiri McAllan MSP, Andrew Muir MLA, Anthony Browne MP and Gareth Davies MP said:

“This consultation delivers on our commitments to provide further transparency on the extension of the UK ETS to include energy from the waste and waste incineration sectors and the inclusion of greenhouse gas removals in the system.”