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UK Offers Carbon Removals and the Expansion of the Emissions Trading Scheme to New Sectors

The Emissions Trading Scheme (ETS) Authority of the UK government announced the beginning of a new round of consultations. The proposals center on integrating greenhouse gas removals into the ETS and extending the carbon pricing system of the ETS to new industries, such as waste incineration and energy from waste.

The UK ETS, which was introduced in 2021 to replace the UK’s involvement in the EU’s Emissions Trading System, sets a limit on greenhouse gas (GHG) emissions for important sectors with high GHG concentrations. The limit decreases over time to encourage companies to reduce their emissions in accordance with sector climate goals, and they receive allowances for each tonne of emissions they produce annually. Businesses who are able to keep their emissions below the limits can sell other industry players emissions permits on the secondary market, which raises the price of carbon and encourages them to make investments in more energy-efficient and cleaner sources of energy.

Currently, the aviation, power, and industrial sectors are covered by the ETS; however, the Authority has been looking into expanding the system to include more of the UK economy. Last year, the Authority unveiled intentions to incorporate energy from waste and waste incineration, as well as proposals to include domestic maritime transport, in the ETS. Tighter emissions restrictions were also planned for the present sectors.

The Authority is suggesting that, as part of the new energy from waste and waste incineration consultation, CO2 emissions from the industry be included starting in 2028, after a two-year phase-in period starting in 2026. Emissions from the sector will be tracked, recorded, and confirmed during the phase-in, but there will be no requirement to buy or give up ETS credits. The Authority stated that in order to encourage the sector to embrace decarbonization technology, the sector’s inclusion will take place in tandem with other efforts.

In addition, the Authority has opened up consultations regarding the potential integration of UK-based engineered greenhouse gas removal technologies, like Direct Air Capture (DAC), into the ETS. This could facilitate the establishment of a long-term market for greenhouse gas removals (GGRs) and investigate the possibility of incorporating carbon stored in newly created UK woodland into the ETS. As per the consultation, the Authority has been ordered to investigate the possibility of integrating GGRs into the ETS as a means of policy to expand the market, since the UK’s independent Climate Change Committee (CCC) has acknowledged the significance of GGRs in achieving the country’s net zero objectives.