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Plans to Expand Emissions Trading Scheme (ETS) in the UK Delayed Amidst Concerns

Earlier reports in June suggested that the UK government was considering expanding the emissions trading scheme (ETS) to include road transport and heating. However, these plans seem to have been put on hold due to the potential risk of a public backlash against higher consumer costs.

Since the launch of the ETS in May, the government has implemented policy measures aimed at decarbonizing the transport and heating sectors through the Transport Decarbonisation Plan and Heat and Buildings Strategy. Some argue that extending the ETS may be politically risky and unnecessary considering these existing efforts.

Recent press reports indicate that the consultation on the future of the ETS has been postponed until spring 2022. The Department for Business, Energy and Industrial Strategy has stated that no decisions have been made regarding the future design of the ETS. However, the government is reportedly still exploring options to expand the ETS, potentially encompassing sectors such as waste plants, shipping, and agriculture.

Experts suggest that waste plants, where operators are increasingly interested in adopting carbon capture and storage (CCS) technologies, could benefit from being included in the ETS. Shipping presents more significant logistical and political challenges due to emissions targets set by the International Maritime Organization (IMO). Nonetheless, proponents argue that like the aviation industry, cross-border operators in shipping should comply with regional carbon markets. Agriculture poses the most significant challenge, with concerns that carbon levies on farmers could be perceived as a "meat tax." The sector is also heavily reliant on international trade, adding complexities to carbon pricing.

The National Farmers' Union (NFU) has expressed openness to the sector being included in a carbon pricing scheme, highlighting opportunities for on-farm carbon sequestration and engineered carbon storage. The NFU has called for robust measurement systems, which the government is reportedly exploring.

However, the risk of carbon leakage and potential impacts on food security has been raised. The International Emissions Trading Association (IETA) does not anticipate agriculture being included in the UK ETS soon, given its political sensitivity and the apparent rejection of carbon pricing for transport and heating. Instead, IETA believes regulations focusing on ensuring agricultural land sequesters carbon are more likely. The European Parliament is currently discussing the expansion of the EU ETS as part of its Fit for 55 proposals.


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