UK Emissions Trading Scheme: future markets policy
Read the full outcome
Detail of outcome
In this response, we set out the final markets policy decisions agreed by the UK ETS Authority, and a summary of the stakeholder consultation responses.
We have made the following decisions:
- to retain and inflation-proof the Auction Reserve Price (ARP) to maintain its real value, implementing an inflation-based increase since its introduction (that is, from £22 to £28) in 2026 and increase the value yearly by inflation from 2027
- to retain the existing design and operation of the Cost Containment Mechanism (CCM) and retain discretion
- to discount the implementation of a quantity-triggered Supply Adjustment Mechanism (SAM) for a standalone UK ETS
It was announced at the 19 May 2025 UK-EU Summit that the UK and EU have agreed to work towards linking the UK ETS and EU Emissions Trading System (EU ETS) as set out in the Common Understanding.
The decisions in this document set out changes to markets policy for the UK ETS. The decisions do not represent UK positions for the negotiations, and they also do not preclude any changes that may need to be made in the event that the UK and EU agree to link their schemes.
Next steps
Following this response, the Authority will proceed with implementing the changes to the ARP. The initial inflation-based increase from £22 to £28 will take place in 2026, and the yearly inflation increase will occur from 1 January 2027.
Before the changes to the ARP take effect in 2026, the legislation will need to be laid and in force. We intend to give the market at least a months’ notice ahead of the ARP changes being implemented
The CCM will continue to operate in line with current rules.
Detail of feedback received
We received 58 responses to this consultation, representing a wide range of stakeholders, including:
- energy companies
- industrial companies
- trade associations
- non-governmental organisations (NGOs)
- think tanks
These stakeholders provided feedback on market risks, markets policy options and the design of market stability mechanisms.
Original consultation
Consultation description
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 input on a number of proposals to develop future markets policy.
The Authority is reviewing ETS markets policy to ensure that it remains fit for purpose and is effective in managing the risks faced by an established and maturing scheme. This will help to maintain stable and effective market conditions that will continue to incentivise decarbonisation in the traded sector.
This consultation seeks views on:
- whether the Authority has identified the most significant risks to effective market functioning
- the suitability of different policy options to address the risks identified
- how individual market stability policies should be designed to most effectively address market risks while minimising intervention and disruption in the market
This consultation is open to all but will be of particular interest to:
- individual companies and representatives of industrial, power and aviation sectors with obligations under the UK ETS
- ETS market traders
- financial institutions and investors
- environmental groups
- individual companies and representatives of maritime, waste, greenhouse gas removals and agricultural sectors
The 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
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UK ETS Authority response published.
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First published.