Carbon budgets for UK aviation and power sectors to be tightened in 2024

Pictured: Industrial cluster at Port Talbot

It will also, for the first time, extend emissions caps to additional sectors including waste management and domestic maritime transport.

The changes will come into effect in early 2024, with exact levels for emissions limits to be determined. The figures will be announced by the  UK Emissions Trading Scheme Authority (UK ETS) – the joint body comprising the UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland.

The UK has operated an ETS since 2021 and this will mark the first major reform to the post-Brexit scheme.

Under the ETS, businesses are required to stay within emissions limits or buy additional allowances. Companies that deliver reductions above and beyond what’s required can sell unused allowances to other firms.

In a statement, the Government said that enhanced emissions goals will “send a clear signal to industry to invest in the long-term decarbonisation”. But Ministers have opted to set the cap at the highest level considered, to “ease the transition” for businesses amid the cost-of-living crisis.

Moreover, free allowances will be kept at their current levels until 2026, due to industrial players seeking certainty for support amid current economic challenges.

The UK ETS Authority stated: “There will be a smooth transition to the net zero cap – by releasing additional allowances from reserve pots to the market between 2024 and 2027 the UK ETS Authority will ensure that there is no sudden drop in allowance supply between 2023 and 2024.”

In a joint statement, UK ETS Authority Ministers wrote: “With the recent rises in energy prices, it is more important than ever that we accelerate the transition away from costly fossil fuels, towards greener and more secure energy.

“Our UK Emissions Trading Scheme, along with other interventions, forms part of a wider strategy to provide a long-term framework to incentivise UK industries to decarbonise – seizing the huge opportunities that are arising from a rapidly expanding clean energy sector, and providing the certainty that industries need to invest in new green technologies.”

Greenhouse gas removals

The UK ETS Authority has also concluded that the ETS is an appropriate mechanism through which to scale man-made greenhouse gas removal (GGR) technologies. It is also set to consult, later this year, on whether the mechanism will also be appropriate for nature-based GGR.

From 2026, all free allowances will end for the aviation sector under the UK ETS. The Government is looking at whether airports and airlines can invest in GGR as an alternative, given that the technologies they need to operate in line with the national net-zero trajectory do not yet exist at commercial scale and maturity.

This will doubtless prove contentious. The UK Government’s own climate advisors warned last week that Ministers are betting on largely unproven technologies to deliver the emissions balancing needed to put the UK on course for its legally binding climate targets. The advisors recommended that Ministers consider a cap to airport expansion in particular.

Last year, MPs on the Environmental Audit Committee (EAC) also warned of the potential dangers of over-reliance on man-made GGR.

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