On Friday the 7th of February the UK Government Department for Energy Security and Net Zero (DESNZ) published a series of documents ahead of the upcoming UK ETS baselining exercise, scheduled to take place between 1st of April and 30th of June 2025. These include the template which must to be submitted by all operators, the verification report template, and guidance documentation on how to complete the required obligations. All documents are available online here.
Submitting the correct data within the baseline data report (BDR) is imperative as this will determine the initial free allocation (FA) , if any, that will be received by each installation in the upcoming 2027 – 2030 allocation period. Installations that are not illegible or choose not apply for free allocation will still be obligated to submit some level of report – the details of which are outlined below.
As a reminder, the allocation period was initially 2026 – 2030 but has been delayed by a year to allow more time for the UK ETS Authority to complete the free allocation review and align the next phase with the beginning of the UK Carbon Border Adjustment Mechanism (CBAM). This means that the 2026 scheme year will now be treated as an extension of the current 2021 -2025 phase. Due to this delay, there will be a secondary FA window between April and June 2026 in which operators may confirm or withdraw their application after the FA review has concluded. The timings of the next phase for Hospital and Small Emitter (HSE) installations and their corresponding targets have not been amended.
Applying for free allocation
Operators applying for free allocation are required to complete a BDR template that is verified as satisfactory by an external third-party verifier, along with a monitoring methodology plan (MMP) which lays out the calculation methodology for the submitted figures, as part of the UK ETS Baselining Exercise. If an MMP has already been approved by the Regulator for activity level reporting, this version is acceptable.
Applying to join the HSE list for 2026 – 2030
Those installations wishing to apply for HSE status for the 2026 – 2030 period must provide their installation details, including any current ETS permit, and evidence of eligibility for HSE status. This evidence must be verified or if appropriate, operators may provide a self-declaration. The eligibility criteria for HSE status remains as total thermal input capacity below 35 MW and less than 25 000 tCO2 annual emissions, or an installation which supplies a hospital with at least 85% of the energy produced.
Applying for USE status for 2026 – 2030
Ultra-Small Emitters (USEs) are eligible to opt out of reporting and verification obligations, so long as they have annual emissions below 2 500 tCO2. These installations must still monitor their emissions to ensure that this threshold is not breached. The guidance states that existing UK ETS participants who are looking to gain USE status for the upcoming period must provide evidence that a regulated activity began on site before 1st January 2021 and that reportable emissions for 2021, 2022 and 2023 were all below the 2 500 limit. Similarly to those applying for HSE status, this evidence must be verified or submitted with a self-declaration. The UK ETS Authority has agreed a widening of this eligibility to those who commenced a regulated activity after 1st January 2021, so long as they have one full scheme year of verified emissions before the baselining window opens in April 2025.
Those installations which are currently classed as USEs can apply to retain this status by completing a USE data collection report, a specific document for these operators only, which must be externally verified. The requirement for external verification in this case arises as these sites have not been required to report, be audited or be verified since the inception of the UK ETS.
Not applying for FA, nor HSE or USE status
Installations not falling into any of the categories above must still submit a BDR report, detailing general site information such as current permits, activities carried out at the installation and eligibility for FA, if applicable. A statement that the installation is not applying for any FA for the upcoming phase must also be submitted. The submitted report does not require verification.
If you would like to discuss the UK ETS Baselining exercise in more detail with a Swan Energy ETS Consultant, please get in touch.
