UK Emissions Trading Scheme Free Allocation Review: carbon leakage

Overview

The UK ETS Authority is seeking views on a number of proposals to improve our approach to Free Allocations; specifically, our approach to calculating the Carbon Leakage Indicator and setting the Carbon Leakage List, and the approach to adjusting Free Allocations for Carbon Border Adjustment sectors.

This is an interim consultation following the 2023 UK ETS Free Allocation Review consultation where the Authority committed to publish a draft UK Carbon Leakage List and put forward further options on free allocation adjustments for CBAM sectors. A summary of relevant responses from the 2023 consultation which have been used to form these proposals is included in this publication.

This consultation will be of particular interest to individual companies and representatives of industrial and power sectors with obligations under the UK ETS, and environmental groups. This consultation is not limited to these stakeholders; any organisation or individual is welcome to respond.

The consultation is supported by a NERA Technical Report on Carbon Leakage Indicators and an Analytical Annex on the Free Allocation adjustments for CBAM sectors.

Why your views matter

The Authority previously consulted on the current methodology for distributing Free Allocation. This consultation is seeking stakeholder views on whether to introduce a Carbon Leakage List formulated using UK-specific data, or if retaining the current list would be preferred. If the Authority does decide to amend the Carbon Leakage List, this would be in force from the second allocation period. The second allocation period will begin in 2027, aligned with the introduction of the CBAM, therefore we are also seeking views on how Free Allocations for CBAM covered sectors should be adjusted.