UK Consultation on the Emissions Trading Scheme’s Free Allocation Methodology

The U.K. Emissions Trading Scheme Authority has launched a consultation on its approach to free allocations. The ETS is proposing options to amend the free allocation methodology, focusing on its approach to accounting for activity levels, benchmarking and the manner in which carbon leakage risk is assessed. Carbon leakage occurs when production and associated emissions are transferred from one country to another by a business in order to benefit from lower carbon pricing and climate regulation in other jurisdictions. The free allocation policy is intended to reduce a firm's exposure to the carbon price in the U.K.

Responses to this consultation may be submitted until March 11, 2024. A government response is expected to be published in 2024, with changes implemented in the lead up to the next free allocation period in 2026. The ETS Authority is also consulting on changes to the U.K. ETS markets policy.

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