Guidance

Participating in the UK ETS

Updated 18 October 2022

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Content on the operation of the UK ETS markets, how to take part in auctions and trading on the secondary market has been moved from this page to:

Taking part in the UK Emissions Trading Scheme markets

Overview

A UK Emissions Trading Scheme (UK ETS) replaced the UK’s participation in the 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 – have 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.

This guidance explains who the UK ETS applies to and what is required of installation operators and aircraft operators that are covered by it.

The UK was instrumental in developing the EU ETS and the introduction of a UK scheme provides continuity of emissions trading for UK businesses. Many of the features and processes in the new 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 (BEIS) Offshore Petroleum Regulator for Environment and Decommissioning (OPRED) BST@beis.gov.uk

Detailed guidance for operators on how to comply

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

Aircraft operators should read:

We will publish the detailed guidance for installation operators in spring 2022.

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

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.

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.

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.

Aviation

The routes covered by the UK ETS include UK domestic flights, flights between the UK and Gibraltar, and 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.

For information on how to determine whether you are covered by the scheme read the detailed guidance: UK Emissions Trading Scheme for aviation: how to comply.

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

Hospitals and small emitters

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.

Read the detailed guidance: Opt out of the UK ETS if your installation is a hospital or small emitter.

Ultra-small emitters

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.

Read the detailed guidance: Opt out of the UK ETS if your installation is an ultra-small emitter.

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.

Aviation

Aircraft operators should refer to UK Emissions Trading Scheme for Aviation: How to Comply for further guidance as to their obligations under the Scheme and how to meet these. Failure to comply with obligations under The Greenhouse Gas Emissions Trading Scheme Order 2020 may lead to significant civil penalties being applied.

Installations

Operators apply for and receive their permits and submit their reports via the Emissions Trading System Workflow Automation Program (ETSWAP) previously used under the EU ETS.

Operators should read and understand their permit, and the conditions within relating to monitoring and reporting obligations, as well as those requiring third-party verification of reportable emissions and activity levels.

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.

Using UK greenhouse gas inventory data in UK ETS monitoring and reporting

The Monitoring and Reporting Regulation as modified by the UK ETS Order, allows nationally reported data to be used by installation operators as default factors in specific circumstances.

The latest data, together with data for previous years (including historical data from UK participation in the EU ETS) and guidance on how to use it, is here: Carbon emission factors and calorific values from the UK Greenhouse Gas Inventory.

The ETSWAP system

The ETSWAP system will continue to be used by aircraft operators and installation operators until its replacement by a new permitting, monitoring, reporting and verification (PMRV) system. This is planned for 2023 for operators and verifiers of installations and aircraft. For further information about the new system, see below.

For further information about the ETSWAP system, visit the ETSWAP portal.

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 ETSWAP account to view your client’s reports and to submit your verification opinion statement. To do this, email the Environment Agency, quoting ETSWAP Support in your subject line, at:

New permitting, monitoring, reporting and verification system from 2023

The UK ETS Authority is developing a new digital permitting, monitoring, reporting and verification (PMRV) system to replace ETSWAP.

PMRV will offer a simpler and more intuitive user experience than ETSWAP. This project is being implemented in collaboration with UK regulators, with inputs from different users of the system including operators and verifiers.

The new system was due to be launched in autumn 2022 but has been postponed until 2023, with exact dates still to be confirmed.

PMRV for operators and verifiers of installations

ETSWAP will continue to be used for UK ETS compliance activities until 2023. After that, it will be deactivated. UK operators and verifiers of installations will then start using PMRV for UK ETS compliance activities, including submission of annual reports relating to 2023.

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

Installation operators and verifiers will not have access to ETSWAP after it has been de-activated. They will be responsible for archiving their own data.

PMRV for operators and verifiers of aircraft

ETSWAP will be used for the UK ETS and the Carbon Offsetting and Reduction for International Aviation (CORSIA) compliance activities up to autumn 2023.

During 2023 ETSWAP will be deactivated for aircraft operators and verifiers. They will then start using PMRV for UK ETS and CORSIA compliance activities, including submission of annual reports relating to 2023.

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

Aircraft operators and verifiers will not have access to ETSWAP after it has been de-activated. They will be responsible for archiving their own data.

Keep updated about the new system

We will provide more detailed timings and deadlines for installation operators and verifiers before the end of 2022, and support to help the transition onto PMRV.

Email PMRV@beis.gov.uk to register your interest in a user testing group or for any queries you have about the new system.

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.

Free allocation of allowances

The free allocation of allowances to eligible installation operators and aircraft operators will continue, 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.

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.

Free allowances for the 2021 scheme year were allocated to operator holding accounts in the UK ETS Registry on 26 May 2021.

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. From 2022 onwards the deadline to submit these reports is 31 March of each calendar year.

If the data in your Activity Level Report 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 Activity Level Reports 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 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 Operator Holding Account. Your regulator will confirm if you are required to return any allowances.

You will be able to access your updated Activity Level Report 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 Activity Level Report.

Free allocation from 2022

In 2022 and every scheme year thereafter, free allocation will be allocated on or before 28 February of each calendar year. The deadline for submitting verified Activity Level Reports is 31 March of each calendar year.

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.

Activity Level Changes – COVID-19

Following the ‘Developing the UK ETS’ consultation and as stated in the initial government response, the UK ETS Authority plans to legislate before 2023 to amend the Activity Level Changes (ALC) Regulation. The amendment will allow operators to apply for data from the 2020 scheme year to be omitted from the 2022 ALC process.

This amendment will apply only to those installations that can demonstrate to the Authority significant discrepancies between reductions in activity levels and correlating emissions caused by the COVID-19 pandemic.

The following paragraphs set out the eligibility rules and how to apply for the omission of the 2020 COVID year.

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, that is why we have decided to intervene for those operators severely impacted. The threshold has been set to ensure that those who have been most impacted by this difference between activity levels and emission will be assessed while limiting delays to the processing of 2022 Activity Level Changes (ALCs) for all operators.

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 Authority as it is sector-agnostic and allows for a methodological way of approaching changes to ALC. In addition, applicants 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)/E2019 is greater than or equal to 0.15

  • 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
  • AL 2020 must be less than AL 2019

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 (see the regulator contact details). This will ensure they are aware of your intention and can prepare to receive your application. The 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
  • verified sub-installation attributable emissions data with evidence of verification
  • 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 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 will be reviewed separately as part of this process. Operators may submit verified data as well as the relevant extra evidence to their respective regulator from 12 October 2022.The formal requirements for applications and the powers to determine them will be in amendments to UK ETS legislation and will not be in force until later this year. Please note that the deadline for submitting this data will be 31 January 2023.

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. If yes on both counts, your regulator will then determine your 2022 average activity level based on the activity levels of the sub installation level in 2019 and 2021 (instead of 2020 and 2021).

This assessment and the reasons behind it will be submitted by your regulator to the UK ETS Authority who will make the final decision on the submission. Free allowances for the 2023 scheme year will be withheld until the UK ETS Authority has determined the application and the allocation table has been updated. This is to ensure that 2023 allocations are reflective of potential amendments. Your regulator will then inform you of the determination by the UK ETS Authority.

It is important you review this information to understand the impact of making this change on your allocation already received for 2022; as a change to the allocation already calculated and awarded will be made based on this updated information.

UK ETS auctions and market operation

Auctioning will continue to be the primary means of introducing allowances into the market. Participants will also be 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.

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