The Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025
Split the 2026-2030 allocation period, modified free allocation processes, and enhanced transparency requirements for the UK Emissions Trading Scheme.
This Order implements significant changes to the UK Emissions Trading Scheme (UK ETS), primarily splitting the 2026-2030 allocation period into two separate periods: a one-year 2026 allocation period and a four-year 2027-2030 allocation period.
It establishes new processes for free allocation of emissions allowances, modifies eligibility criteria for ultra-small emitters, enhances registry transparency requirements, and expands information sharing powers for climate change policy development.
Arguments For
Provides continuity of free allocation for existing participants through 2026 by automatically extending current allocation methodologies, reducing administrative burden
Enhances transparency in allowance trading through more detailed public reporting requirements, supporting market integrity
Expands information sharing capabilities to support evidence-based climate policy development and assist the Committee on Climate Change
Creates more flexible entry points for ultra-small emitters by extending eligibility to installations that began operating between 2021-2024
Implements a two-stage application process for 2027-2030 allocation period, allowing operators to adapt to any rule changes between stages
Arguments Against
Increases complexity by creating separate allocation periods rather than maintaining a single five-year period
May create temporary uncertainty for operators during the transition between allocation periods
Requires operators to potentially submit data twice if rules change between application stages
Could create administrative challenges for regulators managing different allocation methodologies simultaneously
May result in market complications from having different rules apply to different time periods
PART 1 - Preliminary
This Order is made in exercise of the powers conferred by sections 44, 54 and 90(3) of, and Schedule 2 and paragraph 9 of Schedule 3 to, the Climate Change Act 2008.
The Order derives its legal authority from the Climate Change Act 2008, specifically sections dealing with emissions trading schemes and related powers.
PART 2 - Free allocation in 2026 allocation period
For installations that benefit from free allocation in the current 2021-2025 allocation period, free allocation in the 2026 allocation period will generally be based on data used to calculate free allocation for the current period without the need for a further application.
Establishes automatic continuation of free allowance allocation through 2026 for existing participants, using current period data to minimize administrative burden.
PART 3 - Greenhouse Gas Emissions Trading Scheme Order 2020 amended
The UK ETS Order is amended to split the forthcoming 2026-2030 allocation period into a 1-year allocation period covering the 2026 scheme year and a 4-year allocation period covering the 2027-2030 scheme years.
Creates two distinct allocation periods (2026 and 2027-2030) from what was previously a single five-year period, allowing for different rules and processes in each period.
PART 4 - Free Allocation Regulation amended
The process for incumbent installations to apply for free allocation in the 2027-2030 allocation period consists of two stages, to be completed between 1 April-30 June 2025 and 1 April-30 June 2026.
Implements a new two-stage application process for free allocation, allowing operators to submit initial data in 2025 and confirm or update it in 2026 based on any rule changes.
PART 5 - Activity Level Changes Regulation amended
More detailed information about transfers of allowances between accounts in the UK ETS registry is required to be published, and the purposes for which a national authority may disclose information obtained under the UK ETS now include developing policy relating to climate change.
Enhances transparency requirements for allowance transfers and expands information sharing powers to support climate policy development and assist the Committee on Climate Change.
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