Background to the report

The UK Emissions Trading Scheme (the Scheme) is a key policy for the government to achieve its net zero ambition.

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The Scheme works as follows:

  • the government sets a cap, divided into individual allowances, on the level of emissions that UK participants in the Scheme, such as power stations, are allowed to emit over a given period; and
  • participants in the Scheme can trade allowances in order to account for their annual emissions, which in turn sets a price on their carbon emissions.

The government expects that, over time, participants will invest in low-carbon technologies such as renewable energy or switch the type of fuel used, as the carbon price becomes higher than the cost of that investment. The Scheme currently covers carbon emissions in the power, industrial and aviation sectors. There are currently over 1,000 participants in the Scheme.

The UK ETS Authority (the Authority) is the joint body responsible for overseeing the Scheme, made up of the UK Government, the Scottish Government, the Welsh Government, and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland. The Department for Energy Security & Net Zero (DESNZ) provides the main ministerial and administrative lead on behalf of the UK Government, as well as the overwhelming majority of resources for the Authority.

Scope of the report

This report:

  • describes the Scheme
  • sets out how the Scheme has worked in practice and performed since it was introduced in 2021
  • explains the Authority’s oversight of the Scheme, including plans for its future development

Conclusions

The Scheme is one of the government’s key policies for achieving net zero. The UK government did well to introduce the Scheme that made sure there was a functioning market in the UK following EU Exit and the Scheme arrangements have continued to work well.

There have been reductions in carbon emissions in the sectors that the Scheme covers, although it is challenging to assess how much of this can be attributed to the Scheme, as opposed to other interventions and wider economic factors. Looking to the future, the Scheme’s effectiveness will, in part, depend on the development of low-carbon technologies.

A greater understanding of the Scheme’s impact on investment in those technologies would help DESNZ to be more transparent about its effectiveness, as well as make better plans for how the Scheme will work alongside other policies in achieving future emissions reductions.

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Publication details

Press release

View press release (30 Jun 2025)

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