The UK ETS replaced the UK’s participation in the EU ETS on 1st January 2021.
The scheme puts a limit on overall carbon production and provides allowances to industries to emit a specific amount of carbon.
Companies that reduce their emissions can sell their allowances to others, making a profit.
Over time, the government reduces the emission limit (“cap”) to encourage further reductions.
In contrast to the EU’s stable carbon prices due to strict regulations, the UK’s post-Brexit climate policies have led to a drop in the cost of carbon emissions for industries.
Analysts have criticised the most recent UK ETS change, as reported by the Financial Times.
A Department for Energy Security and Net Zero spokesperson told Energy Live News: “This government is committed to getting to net zero in a way that grows the economy and protects people’s livelihoods.
“We’ve taken significant steps to improve the ambition of the UK ETS and recently announced a reduction in the cap of 30% – to bring the scheme in line with our net zero goals.
“We want to ensure a smooth transition to the net zero cap allowing the market and participants time to adapt while ensuring the strength of overall ambition is not affected.”