Energy-intensive industries will be incentivised to reach their lowest-ever level of carbon emissions, under detailed plans published by the UK government & devolved administrations late this afternoon.
Next year’s calendar for the UK’s Emissions Trading Scheme will limit the number of carbon allowances for companies to buy to 69 million, or 12.4 per cent fewer than in 2023, and their lowest-ever level.
By 2027, the allocation will fall further to around 44 million, a 45 per cent reduction on 2023. A floor of around 24 million is projected for by 2030.
This afternoon’s figures put plans announced earlier this year into action – to reduce the cap on carbon emissions under the Emissions Trading Scheme in line with the UK’s ambitious Net Zero strategy.
The UK ETS came into operation in January 2021, following the UK’s departure from the European Union. It follows a cap and trade mechanism, with the cap reduced periodically to reflect progress towards the UK’s 2050 Net Zero commitments.
Through the scheme’s auctions process, companies in industries including manufacturing, power generation and aviation are required to buy allowances for every unit of carbon they emit. With fewer permits available to buy, these sectors will need to take further steps to cut their emissions.
The auction calendar published today by ICE Futures Europe, on behalf of the UK Emissions Trading Scheme Authority, gives businesses certainty over the next 12 months and sets the scheme on a clear path for decarbonisation for the six years after that.
In a joint statement, UK Emissions Trading Scheme Authority ministers, including Lord Callanan, Julie James MS, Màiri McAllan MSP and Exchequer eecretary Gareth Davies MP said:
“We want to give our industries the confidence to decarbonise, by investing in efficiency measures and moving away from fossil fuels to cleaner, more secure energy.
“The UK Trading Emissions Scheme will cut supply of allowances auctioned, with a 45 per cent reduction by 2027, to help us on our path to Net Zero””, the ministers went on.
“The auction calendar for 2024 and introduction of the new Net Zero-consistent cap will help provide certainty for businesses, while spurring investment and helping to grow the economy.”
Easing the scheme’s transition to a Net Zero cap, a proportion of allowances that went unused between in the past two years is today allocated to auctions due to be held between 2024 and 2027.
The number of allowances auctioned will still fall significantly each year over this period. There are also programmes in England, Wales, Scotland and Northern Ireland providing millions of pounds to help businesses make the changes needed.
As part of wider changes to the scheme, the UK Emissions Trading Scheme Authority has also committed to exploring measures for the future of the carbon allowances market, including examining the merits of a supply adjustment mechanism.
Such a change would provide a means of altering the supply of carbon allowances more flexibly in response to market conditions.
A copy of the 2024 UK Emissions Trading Scheme auction calendar can be found on the Intercontinental Exchange (ICE) website. ICE runs ETS auctions and secondary markets on behalf of the government.
The UK Emissions Trading Scheme Authority is the joint body comprising the UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland that runs the scheme.