UK Emissions Trading Scheme: Business and Regulations Impact Assessment (BRIA)

Annex B: Description and rationale of proposals that require further consultation

The Authority decisions covered in this annex are not included in this BRIA as:

• these were calls for evidence and any final proposals are subject to further consultation;
• further consultation is required given insufficient data for making a final decision; or
• further consultation is required to finalise the proposal.

A description of each non-technical proposal covered in the Government Response to the UK ETS consultation, and the chapter in which they appear, are provided below. Please refer to the Government Response for further information on the rationale of the decisions.

Chapter 3: Call for Evidence on Future Markets Policy

The Authority agreed to signalling a future consultation on policy relating to the functioning of the UK ETS market, with the aim to build understanding and evidence on potential drivers of evolving market conditions, objectives for market stability policy as the UK ETS evolves and evaluation of existing market mechanisms.

Chapter 5: Expanding UK ETS Coverage within Covered Sectors

Biomass

The Authority agreed to implementing sustainability criteria for all forms of biomass in the UK ETS by 2025 at the earliest.

The objective for implementing sustainability criteria for all forms of biomass in the UK ETS is its importance in delivering effective decarbonisation. This will financially incentivise operators to ensure that all forms (solid, liquid, and gaseous) of biomass combusted at UK ETS installations adhere to a common sustainability standard. Any unsustainable forms of biomass that fail to meet the criteria, therefore, should be exposed to a carbon price. This is expected to be implemented by 2025 at the earliest.

Chapter 6: Expanding the UK ETS to New Sectors

Domestic Maritime

The Authority agreed to expand the UK ETS to include domestic maritime activities from large vessels (over 5000GT), subject to further consultation. The rationale is to overcome a key barrier to decarbonising the sector, which is that maritime fuels do not reflect their environmental costs. This inclusion could strengthen the incentive to adopt low carbon fuels, support deployment of fuel-efficient technologies and introduce more efficient operating practices.

In Scotland, we would expect the sectors impacted to include:

• regular freight feeder services from large English ports (i.e. Felixstowe, Immingham or Liverpool) to Grangemouth or Greenock;
• cruise vessels on UK-only excursions; and
• some larger vessels operating in the oil and gas sector, mainly from Aberdeen.

As both the UK and EU ETS will include vessels over 5000GT on eligible journeys, its impact is expected to be minimal for the Scottish fleet.

We also expect for 11 lifeline ferries services to island communities to be included under the UK ETS. We have also published an Island Communities Impact Assessment on the possible impact to island communities and mitigation strategies^[24].

Waste Incineration and Energy from Waste (EfW)

The Authority agreed to signal the inclusion of waste incineration and EfW in the UK ETS from 2028, preceded by a 2-year phasing period from 2026-2028. The objective of this inclusion is the mitigation of emissions from the sector.

The CCC noted that waste is increasingly being diverted to incinerators and EfW plants - from which emissions continue to rise and has previously highlighted this increase in emissions as an issue to be addressed with urgency. In addition, the Independent Review of the Role of Incineration in Scotland’s Waste Hierarchy recommended that the Scottish Government should support inclusion of incineration (with or without energy recovery) in the UK ETS as one important decarbonisation policy tool. The Scottish Government accepted this recommendation and, subject to further consultation of the details of implementation, we are supportive of expanding the UK ETS to cover waste incineration and energy from waste emissions.

Chapter 7: Calls for evidence on greenhouse gas removals and agriculture and land use emissions

Greenhouse Gas Removals (GGRs)

The Authority will signal that the UK ETS is an appropriate long-term market for GGRs, subject to further consultation. The rationale for this signalling, is to incentivise investment in GGRs, provide a source of demand for GGRs from polluting sectors and futureproof the UK ETS so it continues to play a key role in delivering net zero.