Rural and Environment
UK Emissions Trading Scheme (ETS)
Commenting on the announcement of a UK-wide Emissions Trading Scheme, Environment and Climate Change Secretary Roseanna Cunningham said:
“The Covid-19 pandemic has been an unprecedented global crisis which has fundamentally changed every aspect of our lives and the immediate focus for Government continues, rightly, to be on protecting lives and livelihoods. However, we also recognise that the dual emergencies of climate change and biodiversity loss have not gone away and must form a central part of our recovery from this difficult time.
“Our starting point has most definitely changed but our ambitions need not and I remain deeply committed to our ambition to end Scotland’s contribution to climate change by 2045. That means continuing to work internationally with other countries to reduce our emissions – which is all the more important after EU exit when we lose access to the world’s largest carbon market which covers 25% of our emissions.
“The UK Emissions Trading Scheme (UK ETS) announced today by the UK Government and Devolved Administrations ensures a continued carbon market to drive decarbonisation for our largest greenhouse gas emitters after we leave the EU Emissions Trading System (EU ETS). It provides a pragmatic and feasible approach to deliver decarbonisation of these emitters.
“I have always made it clear that, in the event of Brexit, my preference was for an ETS that is linked to the EU’s scheme where possible – or, failing this, a standalone scheme – rather than pursue a policy of a carbon emissions tax. As Scotland will host the international climate negotiations at COP 26 in Glasgow, which will include rules on international carbon markets, it is particularly important to signal our commitment to a linked UK ETS to demonstrate our international leadership on carbon and to retain access if at all possible to the wider EU carbon market. Accessing that larger market will help business achieve decarbonisation at lower cost.’
‘The UK ETS will have an initial cap which is 5% tighter than the EU ETS, providing the most appropriate balance between realising our climate ambition and our industrial competitiveness, which is particularly important in light of the economic impact of Covid-19.’
“I must stress that this is an initial cap, and I have pressed the UK Government to ensure that this is reviewed within 9 months of receiving further advice on net zero from the Committee on Climate Change in Carbon Budget 6 (around December 2020). We will ensure that this review aligns with our net zero ambitions as soon as possible whilst giving the market time to prepare to ensure the scheme drives sustainable decarbonisation.
“Scotland has the most stringent climate legislation of any country in the world and it is critical that we put a green recovery at the centre of our strategic economic recovery from the Covid crisis. The UK ETS announced today lays the first step in ensuring a continuity in our approach to large polluters, but I will continue to work with and, where appropriate, challenge the UK Government to ensure we develop a robust system that supports our transition to becoming a net-zero society.”
Further information about the UK ETS is available on the UK Government website.
An Emission Trading Scheme (ETS) is a cap-and-trade system for greenhouse gas emissions which creates a carbon market with a carbon price that incentivises decarbonisation. The UK has been part of the EU ETS since 2005 and on leaving the EU, all four UK nations will collectively introduce a UK ETS. The UK ETS will be mandatory for power, industrial and aviation sectors, covering around 25% of the Scotland’s greenhouse gas emissions so will play an important role in delivering Scotland’s net-zero targets.
The ETS caps the total level of emissions from across the energy intensive industry, the power sector and aviation across the UK. The cap is represented by allowances to emit one tonne of greenhouse gas emission, with the total number of allowances reducing each year. Participants are required to obtain and surrender allowances to cover their annual emissions. Participants can purchase allowances at auction or trade them amongst themselves, which allows the market to find the most cost-effective way to reduce emissions. Industrial sectors considered at risk of carbon leakage (whereby carbon costs would make them uncompetitive prompting industry to relocate outside the country in which the ETS applies) receive a proportion of allowances for free.