The UK Emissions Trading Scheme (UK ETS) is a “cap and trade” carbon market. The government sets a cap on the total emissions allowed from the sectors it covers, and each business must surrender one allowance for every tonne of carbon dioxide equivalent (CO2e) it emits. Allowances are auctioned or given out free, and can be traded, so a price for carbon emerges.
Who is covered
The scheme replaced UK participation in the EU ETS on 1 January 2021. It is run by the UK ETS Authority, made up of the UK, Scottish and Welsh governments and Northern Ireland’s environment department. It covers:
- power generation and energy-intensive industry, including combustion sites above 20 MW thermal input;
- aviation: UK domestic flights, flights to Gibraltar and departures to the European Economic Area and Switzerland;
- maritime: domestic shipping from 1 July 2026 for ships of 5,000 gross tonnes and above, with offshore vessels added from 1 January 2027.
The cap falls each year. In 2023 the Authority reset it to a path consistent with net zero. It had planned to bring waste incineration into the scheme from 2028, but confirmed in August 2026 that this will not happen in 2028; a new timeline is still to be set.
The carbon price
Allowance prices move with supply and demand. Each year the Authority publishes an official carbon price, based on the average futures price over the previous 12 months, to calculate penalties.
| Scheme year | Official UK ETS carbon price |
|---|---|
| 2025 | £41.84 per tonne |
| 2026 | £49.41 per tonne |
For generators, the cost of allowances feeds into the wholesale price of electricity from gas.
Linking with the EU
In May 2025 the UK and EU agreed to work towards linking their two carbon markets, which would allow allowances to be used in either system. Formal negotiations began in early 2026. As of October 2026 no agreement had been published, so the two schemes still operate separately.
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