Developing the UK ETS Guidance: Participants who receive Free Allocation

The Swan Energy team has produced a guidance document to summarise the updates shared in: Developing the UK Emissions Trading Scheme (UK ETS) – Main Response


Over the coming weeks we will share key points for different audiences about the UK ETS Guidance. This update is for UK ETS Participants who receive free allocation.

1 – Resetting the Industry Cap

The industry cap will be reset in 2024 to 40% instead of the previously proposed 37% to ensure complete alignment with the net zero consistent cap and mitigate carbon leakage risk.

The Authority will continue to protect the current levels of industrial free allocation until 2026. An estimated 2.5 million allowances will be assigned from the reserve to mitigate against any application of a cross-sectoral correction factor between 2024-2026.

2 – Free Allocation Distribution

By end of 2023 there will be a consultation on the second phase of the free allocation review. In 2024 the Government will respond to the second phase of the free allocation review consultation and undertake the UK ETS Implementation Measures exercise. In 2026 the changes to free allocation methodology will be implemented.

3 – Carbon Leakage Mitigation

The UK Government has published a consultation on a range of carbon leakage mitigation options. Any measures would be designed to work cohesively with the UK ETS Authority’s decisions on the future of free allocations, with the aim of ensuring that carbon leakage risks are mitigated at all stages of the UK’s net zero transition.

4 – Impact of COVID-19 on ALC Regulations

The Authority proposes to amend the Activity Level Changes Regulations to accommodate the above. Significant discrepancies will be determined through the implementation of a 15% threshold level – the difference between the percentage reduction in activity and the percentage reduction in correlating emissions for the 2020 scheme year.

5 – Impact of Maintenance/Planned Down-Time on ALC Regulations

The Authority will not take into account maintenance and down-time with regards to ALC Regulations as such activity is part of the operator’s regular activity.

6 – ALC and Treatment of Existing/New Sub-Installations

No change will be implemented.

7 – Putting Current Benchmark Values in UK Law

A set of UK specific benchmarks will be reviewed and implemented for the next allocation period (2026-2030).

8 – Permit Transfers and Splits

The Authority will treat allocations differently based on the date of the partial transfer and allocations differently based on the date of the permit transfer.

9 – Failure to Surrender Allowances Penalty

The Authority has decided to include the deficit notice and associated penalty, as proposed.

10 – Surrender and Revocation Provisions

The Authority will also extend the deficit notices and penalties to cases where operators have surrendered their permits or had them revoked, on the same timescale.

If anyone would like to receive the full summary document from Swan Energy, please call us on 01484 843867 or email and we’ll be in touch.

Swan Energy has been involved with the UK ETS since its inception and delivers 100% compliance for our clients. Click here to find out more about our service.

Rebecca Scarratt

Carbon Consultant

Rebecca Scarratt

Carbon Consultant

Rebecca has joined the Swan Energy team in 2021. She graduated from the University of Hull with a BSc in Geology with Physical Geography in 2020 and went on to do a MSc in Renewable Energy. Her Masters’ thesis focused on how future climate change may impact the Humber region’s wind energy sector and how adaptation strategies could be used to reduce vulnerability.

In her role at Swan Energy, Rebecca supports the consultancy work the team does with clients across the UK.