UK ETS – changes afoot?

Government have just released the result (so far) of a consultation that was launched in March 2022 on the future of the UK Emissions Trading Scheme (UK ETS).

There’s a lot in this document (164 pages! The full detail of the outcome is available here) so these are our immediate reactions - a couple of things that have the potential to impact our clients:

CHP – electricity generator definition

Currently, if you are in UK ETS and have CHP that exports electricity to the grid you are classified as an electricity generator. This means that you get no free allocation of allowances i.e. there is no recognition of the heat put to use that would otherwise have come from a boiler.

Proposed: If the electricity is generated by a CHPQA-certified plant then the whole installation will no longer be classified as an electricity generator so you’ll receive a free allowance. Although this change will only be applied for the next allocation period of 2026-2030.

20MW threshold and 3MW floor

Currently, if the combined combustion capacity of the plant on a site exceeds 20MW (net CV) you are in UK ETS. However, when working this out you can ignore individual plant that is <3MW.

It was felt that this could be having unintended consequences / distortive effects on sites competing in the same markets.

Proposal: There was no clear ‘we’re doing this’ conclusion and the can has been kicked down the road in the form of a more detailed review to gather more detailed information. Although it does say that any changes will be subject to further consultation. This will all take time, so our view is that any such change (if it was to happen) is unlikely to be implemented before the next allocation period; so from 2026.