UK tightens Emissions Trading Scheme caps for aviation and power from 2024
The UK unveiled Emissions Trading Scheme reforms tightening caps for aviation, power and energy-intensive industries from 2024, with expansion to maritime and waste sectors later. The tightening carbon market and aviation free-allowance phase-out signal cost pressures Indian exporters and aviation operators in UK-linked markets should track.
The UK unveiled reforms to its Emissions Trading Scheme (ETS) to strengthen emission limits in aviation, power and energy-intensive industries starting in 2024. Introduced in 2021 to replace the EU Emissions Trading System, the UK ETS caps greenhouse gas emissions and gradually reduces them. The scheme will expand to include domestic maritime transport in 2026 and waste incineration and waste-to-energy sectors in 2028. Reforms maintain current free-allowance levels until 2026 and add allowances between 2024 and 2027 for a smooth transition.
The reforms affect aviation, power and energy-intensive industry operators facing tighter caps, with domestic maritime transport entering in 2026 and waste sectors in 2028. Free allowances are allocated to prevent carbon leakage for sectors facing international competition, but the UK ETS Authority plans to phase out free allocations for aviation in 2026, judging carbon-leakage risk minimal. The authority also aims to include Greenhouse Gas Removal technologies such as Direct Air Capture, subject to stringent standards, and is considering nature-based removal solutions for potential inclusion.
Affected operators should plan for tighter caps from 2024, the aviation free-allowance phase-out in 2026, and sector expansion to maritime in 2026 and waste in 2028, while monitoring how GGR and DAC technologies may enter the scheme. Indian exporters, airlines and shipping operators with UK-linked exposure should track the tightening carbon market and free-allowance changes, assessing carbon-cost implications for goods and services in UK markets as the ETS aligns more closely with net-zero trajectories.
Key figure — Aviation free-allowance phase-out: 2026
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