On 26 November 2025, the UK ETS Authority published its much anticipated response to the UK ETS Free Allocation Review, setting out how free allocations will operate for the 2027–2030 phase. Below is a high-level summary of the key decisions.
1 – Activity Data: Operators will have the option to exclude 2020 or 2020–2021 activity data when determining their Historical Activity Level (HAL) for the 2027–2030 allocation period
2 – Benchmarks: Existing benchmarks will be retained for 2027, with updated EU benchmark values expected to be adopted from 2028–2030
3 – Carbon Leakage: The current list of sectors deemed at risk of carbon leakage will remain unchanged. There will be no tiering and no early phase-out of free allocation for these sectors
4 – Eligibility Conditions: No new conditions will be introduced for the award of free allocation in 2027, although the Authority may revisit this in future allocation periods
5 – CBAM: Free allocation for sectors covered by the UK Carbon Border Adjustment Mechanism (CBAM) will be gradually phased from 2027 over a nine year period.
The Authority has chosen to make these changes to ensure that free allocation continues to provide meaningful support to UK industry during the UKs transition to net zero and smooth out any potential speedbumps that may hinder the potential linking with the EU ETS.
The response published last night is very detailed and the Swan Energy team is now reviewing this and will release a series of updates over the coming weeks, explaining what these changes mean in practice for UK ETS operators. We will also be working closely with our clients to help them understand and prepare for the impacts on their free allocation entitlements.
If you need support understanding how these changes affect your installation or would like tailored guidance, contact Swan Energy today. Our specialists provide UK ETS consultancy services to help operators navigate regulatory changes with confidence.
