The UK government’s Emissions Trading Scheme (ETS) Authority announced the launch of a new package of consultations, proposing expanding the ETS carbon pricing system to new sectors, including the energy from waste and waste incineration sectors, and on integrating greenhouse gas removals into the ETS.
Launched in 2021 to replace the UK’s participation in the EU’s Emissions Trading System, the UK ETS sets a limit on greenhouse gas (GHG) emissions for key GHG intensive sectors, which decreases over time to motivate companies to lower emissions in line with sector climate goals, with companies obtaining allowances for every tonne of emissions the produce each year. Companies that are successful in reducing emissions below the cap limit are able to sell emissions allowances on the secondary market to other industry participants, creating a carbon price, and spurring companies to invest in cleaner energy and improved energy efficiency.
The ETS currently applies to the aviation, power, and industry sectors, although the Authority has been examining the expansion of the system to cover more of the UK economy. The Authority announced a series of reforms to the ETS last year, including the introduction of tighter emissions limits for the current sectors, and unveiling plans to add the energy from waste and waste incineration and domestic maritime transport to the system.
Under the new energy from waste and waste incineration consultation, the Authority is proposing to include CO2 emissions from the sector beginning in 2028, following a 2-year phase-in period from 2026. During the phase-in, emissions from the sector will be monitored, reported and verified, without an obligation to purchase or surrender ETS allowances. The Authority said that the addition of the sector will be done alongside other initiatives to provide incentives for the sector to adopt decarbonisation technologies.
The Authority also launched a consultation on how UK-based engineered greenhouse gas removal technologies, such as Direct Air Capture (DAC), could be integrated into the ETS, which could help provide a long-term market for greenhouse gas removals (GGRs), and explores whether carbon stored by the creation of new UK woodland could be integrated into the ETS. According to the consultation, the UK’s independent Climate Change Committee (CCC) has recognised the importance of GGRs in reaching the UK’s net zero targets, with the Authority directed to explore the integration of GGRs into the ETS as part of the policy to scale up the market.
Source: UK Proposes Expanding Emissions Trading Scheme to New Sectors, Carbon Removals – ESG Today
About the Authors
Associate Director, Investment Banking
Prachurjya has over 16 years of experience in investment banking with Acuity Knowledge Partners. At Acuity, he has led sector and product-specialist pilot teams across Capital Markets, ESG, Debt Advisory, Loan Syndications, Metals & Mining and Real Estate. He has been actively involved in setting up and on-boarding new ESG Advisory, ESG DCM and Sustainable Finance teams for various bulge bracket investment banks. Within DCM and Rating Advisory, he has been instrumental in helping the clients achieve over 30% in annual savings on both regular and adhoc tasks through standardization of the outputs and deployment of our proprietary BEAT tools.
Delivery Manager, Investment Banking
Puja has 7 years of extensive experience in ESG, Climate Change & Sustainability and she is supervising the ESG team at Acuity. She also has diverse experience in conducting ESIA, EHS compliance audits, ESG Risks and Controls, EHS & ESG Due Diligence assessments. Prior to joining Acuity, she was working with companies like KPMG Global Services, EY India and ERM India. She has expertise in provisioning extensive research requirements for clients through preparation of Peer Benchmarking, Target Compilation, Sustainability report, Sustainable Finance Updates and Sectoral ESG Thematic Detailing Engagement.
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