UK Emissions Trading Scheme: free allocation review
Read the full outcome
Detail of outcome
16 December 2024: Extending the UK ETS first Free Allocation period to 2026
As a result of the targeted consultation sent to operators (26 September 2024), the UK ETS Authority has confirmed that the start of the second allocation period will move from 2026 to 2027, in effect extending the current allocation period to include 2026. This means that changes to Free Allocation will align with the introduction of the UK Carbon Border Adjustment Mechanism in 2027.
We have published more details on this outcome in the UK ETS response on this page.
Operators will also receive the full details of the response from their scheme regulator.
The initial Authority response to the 2023 free allocation review consultation covers proposals to be implemented in 2025.
It sets out responses to Technical Changes One and Two from the 2023 consultation, confirming changes to free allocation rules to ensure participants who permanently cease their operations do not receive excess free allocation in their final year.
The new rules will ensure that the free allocation received in a participant’s final year of operation is proportionate to their activity levels. The changes include an exemption for sites which are ceasing activity to decarbonise. This will support the UK ETS’s objective of incentivising a move to more carbon efficient production across the UK’s industrial sectors.
Original consultation
Consultation description
Note on extending the UK ETS first Free Allocation period to 2026 (26 September 2024)
The UK ETS Authority is consulting operators in the scheme on a proposal to move the start of the second allocation period from 2026 to 2027, extending the current allocation period to include 2026. Operators will receive the consultation from their scheme regulator and have until 11 October to submit responses.
The change aims to align changes to Free Allocation with the introduction of the UK Carbon Border Adjustment Mechanism in 2027. The Authority received a significant number of responses to the Free Allocation Review consultation indicating a preference for this alignment to ensure a consistent approach to carbon leakage mitigation. The Authority will ensure that any changes made to Free Allocation rules under the Free Allocation Review will be published by the end of 2025, with implementation in 2027.
The Authority is proposing that:
- the baseline data reporting exercise will continue as planned from 1 April to 30 June 2025
- applications for the second free allocation period will be made in 2026
- updated lists of installations with hospital or small emitter (HSE) and ultra-small emitter (USE) status will come into effect from 2026, with the application window for inclusion on these lists open from 1 April to 30 June 2025
- changes to the current rules regarding the electricity generator classification will come into effect in 2026
The UK Emissions Trading Scheme (UK ETS) Authority (UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs for Northern Ireland is seeking views on proposals to alter the free allocation methodology for the stationary sectors to better target those most at risk of carbon leakage and ensure that free allocations are fairly distributed.
This will broadly focus on 4 key areas:
- how we account for emissions and activity
- benchmarks
- the carbon leakage list
- additional factors we might want to introduce to free allocation methodology
The consultation is open to all, but will be of particular interest to:
- individual companies and representatives of industrial and power sectors with obligations under the UK ETS
- environmental groups
This consultation does not apply to NI electricity generators who participate in the EU ETS by virtue of the Ireland / Northern Ireland Protocol.
See our consultation privacy notice.
Documents
Updates to this page
Published 18 December 2023Last updated 16 December 2024 + show all updates
-
Update on extending the UK ETS first Free Allocation period to 2026 added.
-
Free allocation review: initial authority response published, covering proposals to be implemented in 2025.
-
Published a note on extending the UK ETS first Free Allocation period to 2026.
-
First published.