UK Carbon Market
UK Emissions Trading System (UK ETS)
The UK's cap-and-trade system for carbon emissions. Understand how it works, who participates, and what it means for your business.
~£50
per tonne CO2
Current Price
4.87%
annual decrease
Cap Reduction
1,000+
UK installations
Participants
~33%
of UK total
Emissions Covered
How the UK ETS Works
A cap-and-trade system that puts a price on carbon emissions from the UK's largest polluters
1. Cap is Set
Government sets an overall limit on emissions. This cap decreases each year, aligned with UK net zero targets.
2. Allowances Issued
Allowances are distributed through auction or free allocation. Each allowance permits 1 tonne of CO2e emissions.
3. Trade & Comply
Participants can buy or sell allowances. At year end, they must surrender allowances equal to their emissions.
Sectors Covered by UK ETS
The UK ETS covers emissions from energy-intensive industries, power generation, and aviation
Power Generation
No free allocationElectricity generators must purchase all allowances at auction
Energy-Intensive Industry
Free allocation availableManufacturing sectors receive free allowances based on benchmarks
Aviation
Partial free allocationUK domestic flights and flights to EEA countries covered
UK ETS Phases & Timeline
2021-2025
Phase 1
- Initial UK ETS cap set at 5% below EU ETS allocation
- Free allocation based on EU benchmarks
- Market Stability Mechanism introduced
2026-2030
Phase 2
- Aligned with net zero trajectory
- Cap reduced by 4.87% annually
- Phase-out of free allowances begins
- CBAM integration from 2027
2031+
Future Phases
- Further tightening toward net zero
- Potential sector expansion
- Full CBAM implementation
UK ETS vs EU ETS
Similarities
- Cap-and-trade mechanism
- Same covered sectors
- Similar monitoring and reporting
- Free allocation for at-risk industries
Key Differences
- Separate markets (no linking)
- Different price floors and ceilings
- UK-specific cap trajectory
- Different CBAM timelines
Understand Your UK ETS Obligations
Use our tools and resources to calculate your carbon costs and ensure compliance.