UK Emissions Trading Scheme Free Allocation Review: carbon leakage
This consultation is open for responses
Respond to this consultationSummary
DESNZ consults on adjusting free carbon allowances for industrial sectors under UK ETS, focusing on carbon leakage calculations and border adjustment impacts. The consultation proposes changes to how the Carbon Leakage List is calculated and how free allocations adjust when EU's Carbon Border Adjustment Mechanism affects UK industries. This follows a 2023 review that committed to publishing a draft leakage list.
Why it matters
This is redistributive policy that subsidises industrial carbon costs rather than addressing electricity market structure. The consultation may shift which industries receive free allowances but does not change the fundamental carbon pricing mechanism affecting power generators.
Key facts
- •Interim consultation following 2023 UK ETS Free Allocation Review
- •Focuses on Carbon Leakage Indicator calculations and Carbon Leakage List
- •Addresses free allocation adjustments for Carbon Border Adjustment sectors
- •Supported by NERA Technical Report and Analytical Annex
Areas affected
Related programmes
Memo
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](https://www.gov.uk/government/consultations/uk-emissions-trading-scheme-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.