The UK ETS Authority has opened a consultation reviewing how the free allocation regulations should apply to hydrogen production for 2027-2030.
From 2027, the UK Carbon Border Adjustment Mechanism (UK CBAM) will begin applying a carbon price to certain imported goods. As CBAM starts to provide carbon-leakage protection for goods in scope, free allocation for UK ETS sub-installations serving the production of UK CBAM goods will be phased out.
Free allocation relating to hydrogen production is under review because production from one product benchmark sub-installation may serve different end uses. Some hydrogen may be a UK CBAM good, while other hydrogen may be used in refinery or organic chemical processes that do not produce UK CBAM goods.
The Authority is concerned that current rules could apply the phase-out too widely where hydrogen is supplied to another eligible installation, even if that hydrogen is ultimately used for non-UK-CBAM purposes.
The UK ETS Authority is seeking views on the following:
Proposal 1 – Hydrogen supplied to another refinery or organic chemical installation would be treated in the same way as equivalent hydrogen used on-site, provided it is not used in the production of a UK Carbon Border Adjustment Mechanism (CBAM) good.
Proposal 2 – Operators would be able to split a product benchmark sub-installation between production serving UK CBAM goods and production serving non-UK CBAM goods. This would mean the free allocation phase-out only applies to the portion of production associated with UK CBAM goods.
The proposed changes would apply to the 2027–2030 scheme years and would not adjust free allocation already distributed for earlier years. Operator to do list:
✔ Review the proposals.
✔ Submit response to the consultation by 23:59 on 2 October 2026. Responses should be sent to ukets.consultationresponses@energysecurity.gov.uk.
Swan Energy will continue to update you on the Hydrogen Free Allocation Consultation and if you would like to talk to us, get in touch.
