The UK Emissions Trading System (UK ETS) is a cap-and-trade system formed on January 1st 2021 for roughly 1000 permit holders of installations previously covered by the EU Emissions Trading System. These include but are not limited to:
- Power stations
- Oil Refineries
- Industries that produce iron, steel, cement, paper, glass and chemicals
- Aircraft operators administered within the UK
The UK ETS is a key component of the UK’s climate ambition to achieve carbon neutrality by 2050, driving cost effective emissions reductions through robust carbon pricing. Installations covered by the system must surrender sufficient UK allowances (UKAs) at the end of each year to account for their greenhouse gas emissions.
UKAs are distributed through a combination of free allocation provided to the installations by the UK Government and through government run UKA auctions. The first UKA auction will take place in Q2 2021, and allowances will be sold with a ‘floor price’ of £15.00; designed to ensure that the UK ETS maintains a meaningful carbon price.
Northern Ireland power generators will not initially operate within the UK ETS, instead staying within the EU ETS, in order to maintain operation of the Single Electricity Market between Ireland and Northern Ireland.