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A new UK emissions trading system?

The UK government has published proposals published showing how a new UK-wide Emissions Trading System (ETS) would work.

The system – designed by the UK, Scottish and Welsh governments with the Northern Ireland Executive – would be a crucial step towards achieving the UK’s target for net zero carbon emissions by 2050. It includes plans to reduce the existing emissions cap by 5%, going further than the current EU system.

The new scheme would replace the EU ETS, which the UK will leave at the end of this year. Once a new system is up and running, the government says it intends to go further by amending the cap again in line with its net zero target.

Emissions trading systems work by setting a cap on the total amount of greenhouse gases that can be emitted from certain sectors – in the UK’s case by energy-intensive industries such as steel, the power generation sector and aviation. The cap is reduced over time so that total emissions fall.

After each year, every covered company must surrender enough carbon allowances – each representing tonnes of carbon dioxide – to cover all its emissions, or fines of up to £100 per allowance are imposed. Carbon allowances can be bought at auction and traded, and these markets determine their cost (the ‘carbon price’).

Around a third of UK emissions and around 1,000 UK factories and plants are currently covered by the EU ETS and will continue to be covered by the UK system. The government says that UK would be open to considering a link between a UK ETS and the EU ETS, if it suits both sides’ interests.

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