Energy and carbon EWSNI
UK Emissions Trading Scheme (UK ETS)
The UK ETS is a cap-and-trade scheme covering power generation, energy-intensive industry with combustion plant over 20 MW, aviation and, since 1 July 2026, ships of 5,000 GT and above on domestic voyages. Operators monitor and verify their emissions, report by 31 March and surrender one allowance per tonne of CO2e by 30 April. The planned 2028 expansion to waste incineration has been dropped, and the UK and EU are negotiating to link their schemes.
At a glance
- Who must comply
- Operators of installations with combustion plant over 20 MW thermal input or listed industrial activities; aircraft operators on UK-EEA-Swiss routes; ships of 5,000 GT+ on domestic voyages.
- Thresholds
- 20 MW total rated thermal input for combustion; opt-outs for hospitals and small emitters under 25,000 tCO2e and 35 MW; ultra-small emitters under 2,500 tCO2e.
- Next key date
- 31 March 2027: verified 2026 emissions report (including the first maritime half-year); 30 April 2027: surrender allowances.
- Regulator
- The UK ETS Authority (UK and devolved governments) sets policy; the Environment Agency, NRW, SEPA, NIEA and OPRED regulate; the Environment Agency runs the registry.
- Maximum penalty
- Excess emissions penalty of £100 per tonne (2021 value, inflation-adjusted) plus the duty to surrender, daily penalties of £1,000 for ignoring a deficit notice, and publication.
- Where to do it
- UK Emissions Trading Registry and the regulator's permit and reporting systems (ETSWAP or Manage your UK ETS reporting).
This probably applies to you if
- Your site's combustion units add up to more than 20 MW rated thermal input (excluding units under 3 MW and some biomass)
- You run refining, steel, cement, lime, glass, ceramics, pulp and paper, chemicals or other listed industrial activities
- You operate flights within the UK, from the UK to the EEA or Switzerland, or to Gibraltar, above the de minimis thresholds
- You operate ships of 5,000 gross tonnage or more between UK ports or within UK ports
- You are in Northern Ireland and generate electricity (you stay in the EU ETS instead)
How the UK ETS works
The UK ETS replaced the UK's participation in the EU ETS on 1 January 2021. A cap sets the total allowances available each year and falls over time; operators must hold a greenhouse gas emissions permit, monitor their emissions under an approved plan, have the annual report verified and surrender one UK allowance (UKA) for each tonne of CO2 equivalent. Allowances are auctioned, traded on the secondary market, or given free to sectors at risk of carbon leakage. The Greenhouse Gas Emissions Trading Scheme Order 2020 is the legal basis, and the scheme is run jointly by the UK and devolved governments as the UK ETS Authority.
Who is in scope
| Sector | In scope | Exemptions and opt-outs |
|---|---|---|
| Stationary installations | Combustion units totalling more than 20 MW thermal input; refining, metals, minerals, pulp and paper, chemicals and other Annex activities | Hospitals and small emitters (under 25,000 tCO2e a year and under 35 MW) can opt for emissions targets instead; ultra-small emitters (under 2,500 tCO2e) are exempt from surrender but must monitor |
| Aviation | Flights within the UK, UK to EEA and Switzerland, UK to Gibraltar | Commercial operators under 243 flights per four-month period or under 10,000 tCO2e; non-commercial under 1,000 tCO2e |
| Maritime (from 1 July 2026) | Ships of 5,000 GT and above on domestic voyages and in UK ports, covering CO2, methane and nitrous oxide | Government non-commercial vessels; offshore vessels delayed to January 2027; international voyages proposed for 2028 at 50% |
| Waste incineration | Not in scope; voluntary monitoring from 2026 | Expansion planned for 2028 has been dropped with no new date |
Power generators in Northern Ireland remain in the EU ETS under the Windsor Framework.
The annual compliance cycle
| Deadline | Task |
|---|---|
| Throughout the year | Monitor emissions under your approved monitoring plan; notify changes |
| By 31 March | Submit the verified annual emissions report (and activity level report where you receive free allocation) for the previous calendar year |
| By 30 April | Surrender allowances equal to the previous year's verified emissions |
| 30 June | Deadline to apply for an increase in free allocation after a capacity change, where applicable |
Allowances are held and surrendered in the UK Emissions Trading Registry, administered by the Environment Agency. Verification must be done by an accredited verifier before the March deadline.
Watch out: the excess emissions penalty does not cancel the surrender obligation. If you fall short by 1,000 tonnes you pay the penalty and must still buy and surrender 1,000 allowances.
What changed in 2025 and 2026
- Maritime: the scheme extended to domestic shipping from 1 July 2026 for vessels of 5,000 GT and above, following the November 2025 government response. Offshore vessels join in January 2027. A consultation on covering international voyages from 2028 at 50% closed in January 2026 and the outcome is awaited.
- Waste incineration: voluntary monitoring, reporting and verification began on 1 January 2026, but in August 2026 the Authority confirmed the 2028 expansion will not go ahead as planned and will set a new timeline in due course.
- Free allocation: the second allocation period was moved from 2026 to 2027 to 2030 to align with UK CBAM; aviation free allocation ended on 1 January 2026; free allocation for CBAM-covered sectors phases out gradually from 2027.
- Greenhouse gas removals: the Authority intends to legislate by the end of 2028 for engineered removals to enter the scheme by the end of 2029.
- Linking with the EU ETS: the UK and EU agreed on 19 May 2025 to work towards linking; negotiations began after the EU's mandate in November 2025, with a joint aim of concluding at the next UK-EU summit. Linking would allow mutual recognition of allowances and mutual CBAM exemptions.
How to comply, step by step
Check whether your site or fleet is in scope
Add up combustion capacity, check the Annex activities, and for ships check gross tonnage and voyage patterns from 1 July 2026.
Apply for a permit and open a registry account
A greenhouse gas emissions permit (or emissions monitoring plan for aircraft and ships) from your regulator, plus an operator holding account in the UK registry.
Monitor to the approved plan
Fuel and material data, calculation factors and measurement systems as set out in the monitoring plan; keep evidence for verification.
Verify and report by 31 March
Appoint an accredited verifier early; submit the verified report and any activity level report through the regulator's system.
Surrender by 30 April
Buy allowances at auction or on the market, or use free allocation, and surrender in the registry.
Penalties
The excess emissions penalty is £100 per tonne of CO2e not covered by surrendered allowances, uprated for inflation from its March 2021 value, and the shortfall must still be surrendered. A deficit notice sets a new deadline; ignoring it attracts a penalty of 1.5 times the carbon price and daily penalties of £1,000. Operating without a permit, failing to monitor or report, and failing to verify each carry separate civil penalties, and the names of non-compliant operators are published.
How it differs across the UK
- E England
The Environment Agency regulates English installations and operates the UK registry; the scheme's rules are UK-wide.
- W Wales
Natural Resources Wales regulates Welsh installations under the same UK-wide scheme.
- S Scotland
SEPA regulates Scottish installations; the Scottish Government is a member of the UK ETS Authority.
- NI Northern Ireland
NIEA regulates Northern Irish installations, except electricity generators, which remain in the EU ETS under the Windsor Framework.
Key dates
-
UK ETS extends to ships of 5,000 GT and above on domestic voyages and in UK ports
-
Offshore vessels join the UK ETS maritime scope; second free allocation period begins
-
UK ETS: verified 2026 emissions reports due (installations, aircraft and ships)
-
UK ETS: surrender allowances for 2026 emissions
-
International maritime voyages proposed to join the UK ETS at 50% of emissions
Dates marked “Proposed” are announced or consulted on but not yet law. See the full deadlines calendar.
Penalties and enforcement
| Breach | Penalty | Applies in | |
|---|---|---|---|
| Failing to surrender enough allowances by 30 April | £100 per tonne CO2e (March 2021 value, adjusted for inflation) plus the continuing duty to surrender; 1.5× carbon price and £1,000 daily penalties after a deficit notice | EWSNI | Source |
| Operating an installation without a greenhouse gas emissions permit, or failing to monitor, report or verify | Civil penalties set by the 2020 Order and publication of non-compliance | EWSNI | Source |
Compliance checklist
Where to do it: official services
-
Participating in the UK ETS
Guidance
The official guide to scope, permits, monitoring, reporting, verification and surrender deadlines. UK ETS Authority via GOV.UK EWSNI
-
Register for the UK Emissions Trading Registry
Register or apply
What you need to open an operator holding account to hold and surrender allowances. Environment Agency EWSNI
-
UK ETS: a policy overview
Guidance
The Authority's current statement of scope changes, maritime, free allocation, removals and EU linking. UK ETS Authority EWSNI
-
UK Emissions Trading Scheme for installations: how to comply
Register or apply
How installations apply for a greenhouse gas emissions permit and meet monitoring, reporting and surrender duties. UK ETS regulators via GOV.UK EWSNI
The law behind this
Questions people ask
Which businesses are in the UK ETS?
Installations with combustion plant totalling more than 20 MW thermal input and sites carrying out listed industrial activities such as refining, steel, cement, glass, ceramics, paper and chemicals; aircraft operators on UK domestic, UK-EEA and UK-Switzerland routes; and, since 1 July 2026, ships of 5,000 GT and above on domestic UK voyages. Smaller emitters can opt into lighter regimes, and waste incinerators are not yet in scope.
When are the UK ETS deadlines?
Verified annual emissions reports are due by 31 March for the previous calendar year, and allowances must be surrendered by 30 April. Activity level reports for free allocation share the 31 March deadline. The first reports covering maritime emissions, for 1 July to 31 December 2026, are due by 31 March 2027.
Is energy from waste in the UK ETS?
Not yet. Waste incinerators began voluntary monitoring and reporting on 1 January 2026 ahead of a planned 2028 entry, but in August 2026 the UK ETS Authority confirmed that the expansion will not take place in 2028. No new date has been set, so operators should keep monitoring and watch for the Authority's revised timeline.
Will the UK ETS link with the EU ETS?
The UK and EU agreed in May 2025 to work towards linking the two schemes, and formal negotiations started after the EU adopted its mandate in November 2025. A link would let allowances be recognised across both systems and create the conditions for mutual CBAM exemptions. Until an agreement is ratified, the schemes remain separate and UK exporters to the EU face the EU CBAM.
What is the penalty for not surrendering allowances?
£100 for every tonne of CO2e not covered by a surrendered allowance, uprated for inflation from March 2021, and you must still surrender the missing allowances. If you ignore the deficit notice that follows, the penalty rises to 1.5 times the carbon price with daily penalties of £1,000, and non-compliant operators are named publicly.
Terms used in this guide
- UK allowance (UKA)
- A tradeable permit to emit one tonne of CO2 equivalent under the UK ETS.
- Free allocation
- Allowances given without charge to sectors at risk of carbon leakage, calculated from benchmarks and activity levels; the second period runs 2027 to 2030.
- Hospital and small emitter opt-out
- An alternative for installations emitting under 25,000 tCO2e a year with under 35 MW capacity, which meet emissions targets instead of surrendering allowances.
- Deficit notice
- A regulator's notice setting a new deadline to surrender missing allowances after the 30 April deadline is missed.
- Carbon leakage
- The risk that carbon pricing moves production and emissions to countries with weaker policies; the basis for free allocation and CBAM.
Sources
- UK Emissions Trading Scheme (UK ETS): a policy overview, GOV.UK (updated 7 September 2026)
- Participating in the UK ETS, GOV.UK
- Greenhouse Gas Emissions Trading Scheme Order 2020
- UK Emissions Trading Scheme factsheet, ICAP
- UK ETS for maritime entering into force on 1 July 2026, Skuld
Reviewed 14 October 2026. If you spot something out of date, email info@thamesenvironment.com.