Guidance

Participating in the UK ETS

Updated 11 November 2024

This page provides an overview of the UK Emissions Trading Scheme, who it applies to, and how it works.

Detailed guidance on eligibility, how to comply, technical guidance and tools are available at:

UK Emissions Trading Scheme (UK ETS): technical guidance and tools

There’s separate guidance on Taking part in the UK Emissions Trading Scheme markets, which covers the operation of the UK ETS markets, how to take part in auctions and trading on the secondary market.

1. Overview

The UK Emissions Trading Scheme (UK ETS) replaced the UK’s participation in the European Union Emissions Trading Scheme (EU ETS) on 1 January 2021.

The UK, Scottish and Welsh Governments and Northern Ireland Department of Agriculture, Environment and Rural Affairs – collectively making up the UK ETS Authority – established the scheme to increase the climate ambition of the UK’s carbon pricing policy, while protecting the competitiveness of UK businesses. The UK ETS is established through The Greenhouse Gas Emissions Trading Scheme Order 2020.

The UK was instrumental in developing the EU ETS and the UK scheme provides continuity of emissions trading for UK businesses. Many of the features and processes in the UK scheme will be familiar to installation operators and aircraft operators.

The UK ETS Regulators are responsible for enforcing compliance with the UK ETS Regulations, including operational functions such as issuing and ensuring compliance with permits (for installations) and emissions plans (for aviation).

The regulators for each of the UK nations, controlled waters, territorial sea and the UK sector of the continental shelf are listed in article 10 of The Greenhouse Gas Emissions Trading Scheme Order 2020. Who your regulator is depends on where your installation is located (installation operators) or where your business is registered (aviation).

This table provides the contact address for each regulator.

Nation	Regulator	Contact address
England (and aircraft operators registered outside the UK)	Environment Agency (EA)	ethelp@environment-agency.gov.uk (installations) etaviationhelp@environment-agency.gov.uk (aviation)
Scotland	Scottish Environment Protection Agency (SEPA)	emission.trading@sepa.org.uk
Wales	Natural Resources Wales (NRW)	GHGHelp@cyfoethnaturiolcymru.gov.uk
Northern Ireland	Northern Ireland Environment Agency (NIEA)	emissions.trading@daera-ni.gov.uk
Offshore oil and gas (DESNZ)	Offshore Petroleum Regulator for Environment and Decommissioning (OPRED)	OPRED@energysecurity.gov.uk

The ‘cap and trade’ approach to reducing emissions

Emissions trading schemes usually work on the ‘cap and trade’ principle, where a cap is set on the total amount of certain greenhouse gases that can be emitted by sectors covered by the scheme. This limits the total amount of carbon that can be emitted and, as it decreases over time, will make a significant contribution to how we meet our Net Zero 2050 target and other legally binding carbon reduction commitments.

Within this cap, participants receive free allowances and/or buy emission allowances at auction or on the secondary market, which they can trade with other participants as needed.

Each year, installation operators and aircraft operators covered by the scheme must surrender allowances to cover their reportable emissions. The cap is reduced over time, so that total emissions must fall.

2. Who the UK ETS applies to

The UK ETS applies to energy intensive industries, the power generation sector and aviation. Activities in scope of the UK ETS are listed in Schedule 1 (aviation) and Schedule 2 (installations) of the Greenhouse Gas Emissions Trading Scheme Order 2020.

Aviation

The routes covered by the UK ETS include:

• UK domestic flights
• flights between the UK and Gibraltar
• flights departing the UK to European Economic Area states

conducted by all included aircraft operators, regardless of nationality.

Most aircraft operators have obligations under the UK ETS.

Installations

The UK ETS applies to regulated activities which result in greenhouse gas emissions, including combustion of fuels on a site where combustion units with a total rated thermal input exceeding 20MW are operated (except in installations where the primary purpose is the incineration of hazardous or municipal waste).

Northern Ireland electricity generators remain in the EU ETS under the Ireland / Northern Ireland Protocol.

3. Simplified provisions for hospitals, small emitters and ultra-small emitters

Hospitals and small emitters (HSEs)

There are simplified provisions for hospitals and also installations with emissions lower than 25,000t CO2e per annum, and where the installation carrying out the activity of combustion has rated thermal capacity below 35MW. These installations will be subject to emissions targets instead of having allowance surrender obligations.

Ultra-small emitters (USEs)

If eligible, installations with emissions lower than 2,500t CO2e per annum may obtain ultra-small emitter status. They would not be required to hold a permit but are still required to monitor and must notify their regulator if they go over the threshold.

4. Technical guidance and tools

The UK ETS Authority and its regulators provide guidance for operators on their compliance obligations with the UK ETS.

The Technical guidance and tools page brings together links to:

• detailed information on how to comply and guidance for installation or aircraft operators who may have obligations under the UK ETS
• detailed guidance for HSEs and USEs
• technical guidance
• tools and information, including links to country-specific factor tables, allocation tables, and report templates
• UK ETS performance reports

If you have queries, contact your regulator in the first instance.

5. Permitting, monitoring, reporting and verification

If you carry out an activity covered by the UK ETS, you must hold a greenhouse gas emissions permit or hospital or small emitter permit (installations) or emissions monitoring plan (aircraft operators). Permits and emissions monitoring plans are issued by the UK ETS Regulators.

Failure to comply with your permit and obligations under The Greenhouse Gas Emissions Trading Scheme Order 2020 may lead to significant civil penalties being applied.

The UK ETS reporting service

Operators can apply for permits and submit reports online, using the Manage your UK ETS reporting service.

This replaces the ETSWAP system. Some users may have known the early version of the new service as the permitting, monitoring, reporting and verification service (PMRV).

Operators, regulators and verifiers can:

• apply for, pay for and manage a permit or emissions monitoring plan
• create, submit or verify annual emissions reports or improvement reports
• manage other reporting such as determining emissions, non-compliances and activity level changes

The new service is currently available for UK ETS installation operators. It will be available for UK ETS aircraft operators and CORSIA aeroplane operators from autumn 2023.

ETSWAP availability

During 2023 there may be a period when ETSWAP is not available for certain compliance activities. Regulators will keep you informed of what you need to do and when.

Operators and their verifiers will not have access to ETSWAP after it has been decommissioned. They will be responsible for archiving their own data.

Finding an accredited UK ETS verifier

The Verification Regulation 2018 (Commission Implementing Regulation (EU) 2018/2067 of 18 December 2018 as modified requires verifiers to be a legal person or another legal entity that is carrying out verification activities for the purpose of UK ETS and is accredited by the UK Accreditation Service (UKAS).

There is no requirement for UK ETS accredited verifiers to have a physical office in the UK or to be a legal entity registered in the UK.

UKAS is responsible for the accreditation and supervision of verifiers in the UK and for maintaining a list of those verifiers.

Operators are responsible for ensuring that their verifier is accredited for the relevant scope of work. Details of a verifier’s scope of accreditation can be found on the verifier’s certificate of accreditation.

If you are a verification body accredited to perform verification in the UK ETS for the first time, you will need an ETS reporting service account to view your client’s reports and to submit your verification opinion statement. To do this, email the Environment Agency, quoting METS Support in your subject line, at:

• ethelp@environment-agency.gov.uk for installations
• etaviationhelp@environment-agency.gov.uk for aviation

6. The UK Emissions Trading Registry

The UK Emissions Trading Registry operates in a similar way to an online bank account. The Registry is a secure web-based application that serves as both the UK Emissions Trading Scheme Registry (UK ETS Registry) holding allowances, and the UK Kyoto Protocol Registry holding international units.

UK ETS Registry records include:

• allowances held in Operator Holding Accounts (OHA), Aircraft Operator Holding Accounts (AOHA), Trading Accounts and Government Accounts
• the movement of allowances between accounts and details of verified emissions and allowances surrendered by operators
• matters relating to the free allocation of allowances to Operator Holding Accounts and Aircraft Operator Holding Accounts

UK Kyoto Protocol Registry records include:

• holdings of international units in accounts
• international unit transfers

Operator Holding Account (OHA) and Aircraft Operator Holding Account (AOHA)

Installation operators must have an Operator Holding Account (OHA) in the Registry to acquire and surrender allowances in line with their UK ETS obligations. Aircraft operators must have an Aircraft Operator Holding Account (AOHA).

OHAs and AOHAs can also be used to trade allowances (UKAs) in the UK ETS markets.

Once your permit or emissions monitoring plan has been issued by your regulator, they will instruct the Registry Administrator to open an OHA, or AOHA for you. You will be contacted by the Registry Administrator and asked to provide details of a primary contact (who is authorised to give instructions to the Registry Administrator on your behalf), and also to nominate authorised representatives to operate your OHA, or AOHA for you.

Trading accounts

UK ETS trading accounts are available for the holding and trading of UK allowances as an activity unrelated to UK ETS compliance. Trading accounts cannot be used for UK ETS compliance, but operators are able to use their OHAs and AOHAs to trade.

To open a trading account, you must first register to use the service, and then request a trading account. The Registry Administrator will then get in touch with you to guide you through the remainder of the process.

Trading accounts require at least 2 registered authorised representatives to operate the account.

Person Holding Accounts

The Registry is also used to host the UK Kyoto Protocol Registry, and Person Holding Accounts are available to be requested if you need to hold or trade international units.

Opening a UK Registry account

The opening of a UK Registry account and the validation of individuals involves the same level of scrutiny as when opening a bank account. This will include requesting any further information to satisfy the Registry Administrator that you are a fit and proper person to hold an account or to act as an authorised representative in relation to an account. As such, this process can take up to 2 months (and longer in some cases).

Read guidance on the documents needed to open a Registry account.

Apply for access to the Registry.

7. Free allocation of allowances

The free allocation of allowances to eligible installation operators and aircraft operators continues, to reduce the risk of carbon leakage for UK businesses.

The initial approach to free allocation in the UK ETS is similar to the EU’s approach for Phase IV of the EU ETS. This ensures continuity for businesses in this area of the scheme. The benchmarks used to calculate free allocation entitlement are the same as Phase IV of the EU ETS.

Free allocation will be allocated on or before 28 February of each calendar year.

Legislation covering free allocation is in The Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2020, which came into force on 31 December 2020.

Free allocation for installation operators

Free allocations will be made available for operators of eligible installations who applied for a free allocation of allowances for the 2021 to 2025 allocation period and for new entrants to the UK ETS. The free allocation application validity will be determined by the UK ETS Authority.

Each installation’s free allocation is published in an Allocation Table once it has been calculated by the regulators and approved by the UK ETS authority.

The UK ETS Allocation Table for operators of installations contains a list of each installation’s free allocation for the 2021 to 2025 allocation period. It is updated periodically.

The industry benchmarks used to calculate free allocations were published by the European Commission on 12 March 2021.

Activity Level Reports and changes in allocation

If you are included in the Allocation Table, you must submit a verified Activity Level Report (ALR) to your UK ETS regulator. The deadline to submit these reports is 31 March of each calendar year.

If the data in your ALR shows an increase or decrease in activity of more than 15% from historic activity levels (calculated from the previous 2 years’ activity levels), your free allocation of allowances will be recalculated.

Your regulator recalculates the free allocation of allowances in line with the Activity Level Change Regulation. The UK ETS Authority approves the final allocation.

When approved, you will be notified by your regulator of changes to your final free allocation of allowances.

Any changes to the free allocation of allowances based on ALRs will then be published in the updated Allocation Table.

Some instances of free allocation amendments may be processed at a later point. They will not be reflected in the published Allocation Table until approved by the Authority. You will be contacted if this is the case. Some allowances may be withheld in which case your regulator will notify you.

Any increase in allocation will be allocated to Operator Holding Accounts (OHAs) in the Registry in line with the updated allocation table, and any reductions in entitlement will mean that you must return any over-allocations from your OHA. Your regulator will confirm if you are required to return any allowances.

You will be able to access your updated ALR from ETSWAP following your regulator’s review. This ALR will contain updated benchmarks and any other changes agreed with your regulator and should be used in future years.

You must use the verification report template for the verification of your activity levels data. You must submit the completed verification report template to your regulator with your ALR.

Cross-sectoral correction factor

The UK ETS Authority has determined that no cross-sectoral correction factor (CSCF) will be applied for the 2021-2025 allocation period.

Free allocation for aircraft operators

Free allocation has been made available to all eligible aircraft operators who applied for a free allocation of allowances under the UK ETS during 2021.

The UK ETS Aviation Allocation Table contains a list of each aircraft operator’s free allocation entitlement for the 2021 to 2025 allocation period. This table is subject to change and the years 2023-2025 should be treated as indicative, pending the outcome of the ongoing free allocation review. Allowances for the relevant scheme year will be allocated to eligible aircraft operators on or before 28 February.

8. Activity Level Changes – COVID-19

As stated in the initial UK ETS Authority response to the Developing the UK ETS consultation (published August 2022), the UK ETS Authority has amended the Activity Level Changes (ALC) Regulation (The Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2023). The amendment will allow eligible operators to apply for activity level data for the 2020 scheme year to be omitted in the redetermination of 2021 average activity levels. The average activity levels affect free allocation entitlement for the 2021 scheme year onwards.  

This mirrors the previous amendment which allowed operators to apply for activity level data for the 2020 scheme year to be omitted in the determination of 2022 average activity levels. The application window for this closed on 31 January 2023. This current amendment has been made in response to a small number of respondents to the Developing the UK ETS consultation who requested that changes also be made the determination of 2021 average activity levels, which also used data for the 2020 scheme year.

This amendment will apply only to those installations:

• where, on submission of its 2021 activity level report (containing data on activity levels in 2019 and 2020), the current rules required a decrease to its free allocation of allowances for the 2021 and subsequent scheme years
• that can demonstrate to the UK ETS Authority significant discrepancies between reductions in activity levels for sub-installations and correlating emissions caused by the COVID-19 pandemic

Please note this may result in changes to free allocations that have already been issued.

The following paragraphs set out the eligibility rules and how to apply.

We are implementing this change as we recognise the unprecedented and, in some instances, large impacts of COVID-19 on activity levels, but not emissions, that were felt by some installations. COVID-19 was unanticipated and exceptional in its nature, so we have decided to make these amendments to assist those operators most severely impacted. The threshold has been set to ensure that those who have been most impacted by this difference between activity levels and emissions will be eligible for redetermination, whilst limiting delays to the ALC process.

To determine if there is a significant discrepancy, a threshold level of 15% between the reduction in activity and reduction in emissions between the 2019 and 2020 scheme years will be applied. The threshold approach has been chosen by the UK ETS Authority as it is sector-agnostic and allows for a methodological way of approaching ALCs. In addition, operators must provide evidence that the reduction in activity, as well as the discrepancy between the reductions in activity and emissions, are due wholly or mainly to the effects of the COVID-19 pandemic. 

The formula used to compare to this threshold is as follows: 

Formula: (AL 2019 – AL 2020)/AL 2019 – (E 2019 – E 2020)/E 2019 is greater than or equal to 0.15, where 

• AL 2019 is the activity level of the sub-installation in 2019;
• AL 2020 is the activity level of the sub-installation in 2020;
• E 2019 is the emissions attributable to the sub-installation in 2019;
• E 2020 is the emissions attributable to the sub-installation in 2020;

If you believe the above will apply to your installation and you intend to make an application, please notify your regulator as soon possible by emailing the respective helpdesk (contact details below). This will ensure they are aware of your intention and can prepare to receive your application. The UK ETS Authority will make the final decision on the application by determining whether the 15% threshold has been met and if this discrepancy can be attributed to the COVID-19 pandemic.  

Operators submitting applications to their respective regulator via email will be required to provide the following information: 

• activity levels and correlating emissions to show that they meet the threshold level
• a verified report identifying the quantity of emissions attributable to the sub-installation in 2019 and 2020 (or a statement from your verifier that your previously submitted report already includes this data)
• evidence that the reduction in activity, as well as the discrepancy between the reductions in activity and emissions, are due wholly or mainly to the effects of the COVID-19 pandemic
• a statement explaining why, when comparing 2020 to 2019 levels, the emissions attributable to the sub-installation did not fall by at least the same proportion as its activity level. This should also be linked to any changes in production data

Each sub-installation in respect of which an application is made will be reviewed separately as part of this process. The deadline for submitting this data will be 31 January 2024. If you cannot submit your data by this date, you may request an extension, but you must make this request by 31 January 2024. The formal requirements for applications and the powers to determine them are in amendments to UK ETS legislation and will not be in force until 1 January 2024.

As soon as reasonably practicable (and when the amendments to the legislation are in force), your regulator will assess whether the evidence provided demonstrates that the 15% threshold has been met and if this was caused by the COVID-19 pandemic.

This assessment and the reasons behind it will be submitted by your regulator to the UK ETS Authority who will determine if the sub-installation meets the requirements.

If the application is approved by the UK ETS Authority, your regulator will determine your:

• 2021 average activity level based on the activity levels of the sub installation in 2018 and 2019 (instead of 2019 and 2020)
• 2022 average activity level based on the activity levels of the sub installation in 2019 and 2021 (instead of 2020 and 2021)

These determinations may affect your free allocations for the 2021-2025 scheme years.

Your regulator will submit the redetermination and recalculations to the UK ETS Authority and, if approved by the UK ETS Authority, your regulator will notify you of your free allocation entitlement in each scheme year from 2021-2025.

It is important that you review this information to understand the impact of making this change on your allocation.

Contacting your Regulators:

• EA: ethelp@environment-agency.gov.uk
• SEPA: emission.trading@sepa.org.uk
• NIEA: emissions.trading@daera-ni.gov.uk
• NRW: GHGHelp@naturalresourceswales.gov.uk
• OPRED (Offshore): OPRED@energysecurity.gov.uk

9. UK ETS baseline data collection process overview

All installation operators within scope of the UK Emissions Trading Scheme (UK ETS) are required to submit data to their regulator between 1 April and 30 June 2025, ahead of the next allocation period.

This data collection period is also the application window for free allocation and for obtaining hospital or small emitter (HSE) and ultra-small emitter (USE) status.  

The baseline data collection is an essential part of the free allocation application, and failure to submit this report by the deadline will result in an operator not receiving free allocation at any point during the second allocation period.

It is essential that applicants for HSE or USE status submit all data required to apply to join these lists for the 2026-2030 period in this window.

Your regulator has sent more detailed instructions to operators via email:

- read the instructions
- if you have any questions, direct them to your regulator

Aircraft operators are not required to submit any data during this window.

For more information see: UK ETS installations, hospitals, small emitters and ultra-small emitters: baseline data collection, 1 April – 30 June 2025. 

The UK ETS Authority and scheme regulators will share regular updates on the data collection process over the coming months.

10. UK ETS auctions and market operation

Auctioning continues to be the primary means of introducing allowances into the market. Participants are also able to trade allowances on a secondary market.

See UK Emissions Trading Scheme markets for background information on the functioning of the UK ETS markets.

Detailed guidance for operators and traders wishing to trade in the UK ETS auctions and secondary market is here: Taking part in the UK Emissions Trading Scheme markets.

11. Supply of allowances

The cap sets the limit on allowances that can be created each year: as set out in Chapter 2 of The Greenhouse Gas Emissions Trading Scheme Order 2020. The base cap is set out in article 9 paragraph 10 of the UK ETS Auction regulations. The final cap is determined by multiplying the base cap by the Hospital and Small Emitter Reduction Factor (HSERF).

The HSERF reduces the base cap to account for the fact that installations which opt to apply for HSE status do not take part in the main cap-and-trade elements of the UK ETS and therefore are no longer covered under the cap. The HSERF for the first trading period (2021-2025) is 98.3882344%. This means that the final cap for the first trading period is 622,911,946, compared to a base cap of 633,116,297. This reduction has already been applied to the first trading period and factored into the auction calendars.

The HSERF for the second trading period will be published once this is calculated following the baseline data collection exercise for the second trading period.

12. Evaluation of the UK ETS, 2023

The UK ETS Authority is undertaking an evaluation to understand:

• the effectiveness of the scheme’s implementation
• the early outcomes of the scheme
• its longer terms impacts

As part of our commitment to using robust evidence to support the development, implementation, and improvement of policies, and in keeping with best practice, this will be a 2-phase process over the next 3 years.

We commissioned CAG Consultants to undertake the evaluation of the UK ETS, in partnership with Winning Moves, University College London and Cambridge Econometrics.

The first phase of the evaluation, covering process, outcomes and early impacts, was completed in December 2023.

12. Related content

• The future of UK carbon pricing - UK government and devolved administrations’ response
• Energy White Paper
• Meeting climate change requirements from 1 January 2021