UK Emissions Trading Scheme: free allocation review
- From:
- Department for Energy Security and Net Zero
- Published
- 18 December 2023
- Last updated
-
1626DecemberNovember20242025 — See all updates
Read the full outcome
Free Allocation Review: final impact assessment
PDF, 1.86 MB, 102 pages
Adolygiad o Ddyraniadau Am Ddim: Asesiad Effaith Terfynol
PDF, 1.75 MB, 103 pages
Detail of outcome
16November 2025: Main response published
The UK ETS Authority published its main (combined) response to this 2023 free allocation review consultation and 2024 free allocation review carbon leakage consultation.
It sets out responses to remaining consultation proposals from the 2023 and 2024 consultations, confirming changes to free allocation rules which will take effect for free allocations distributed over the 2027 to 2030 allocation period.
Free allocations will be targeted at sectors most at risk of carbon leakage in the context of the reset industry cap, in line with the UK ETS objective of incentivising a move to more carbon efficient production across the UK’s industrial sectors. The response outlines the approach for sectors to be covered by the UK Carbon Border Adjustment Mechanism (CBAM) from 2027.
December 2024: Extending the UK ETS first Free Allocation period to 2026
As a result of the targeted consultation sent to operators (26 September 2024), the UK ETS Authority has confirmed that the start of the second allocation period will move from 2026 to 2027, in effect extending the current allocation period to include 2026. This means that changes to Free Allocation will align with the introduction of the UK CarbonCBAM Border Adjustment Mechanism in 2027.
We havepublished more published more details on this outcome in the Moving the second UK ETS free allocation period response on this page.
Operators will also receive the full details of the response from their scheme regulator.
The initial Authority response to the 2023 free allocation review consultation covers proposals to be implemented in 2025.
It sets out responses to Technical Changes One and Two from the 2023 consultation, confirming changes to free allocation rules to ensure participants who permanently cease their operations do not receive excess free allocation in their final year.
The new rules will ensure that the free allocation received in a participant’s final year of operation is proportionate to their activity levels. The changes include an exemption for sites which are ceasing activity to decarbonise. This will support the UK ETS’sETS’s objective of incentivising a move to more carbon efficient production across the UK’s industrial sectors.
Original consultation
Summary
The UK ETS Authority is seeking views on proposals to alter free allocation methodology for stationary sectors to better target those most at risk of carbon leakage.
This consultation ran from
to
Consultation description
Note on extending the UK ETS first Free Allocation period to 2026 (26 September 2024)
The UK ETS Authority is consulting operators in the scheme on a proposal to move the start of the second allocation period from 2026 to 2027, extending the current allocation period to include 2026. Operators will receive the consultation from their scheme regulator and have until 11 October to submit responses.
The change aims to align changes to Free Allocation with the introduction of the UK Carbon Border Adjustment Mechanism in 2027. The Authority received a significant number of responses to the Free Allocation Review consultation indicating a preference for this alignment to ensure a consistent approach to carbon leakage mitigation. The Authority will ensure that any changes made to Free Allocation rules under the Free Allocation Review will be published by the end of 2025, with implementation in 2027.
The Authority is proposing that:
- the baseline data reporting exercise will continue as planned from 1 April to 30 June 2025
- applications for the second free allocation period will be made in 2026
- updated lists of installations with hospital or small emitter (HSE) and ultra-small emitter (USE) status will come into effect from 2026, with the application window for inclusion on these lists open from 1 April to 30 June 2025
- changes to the current rules regarding the electricity generator classification will come into effect in 2026
The UK Emissions Trading Scheme (UK ETS) Authority (UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs for Northern Ireland is seeking views on proposals to alter the free allocation methodology for the stationary sectors to better target those most at risk of carbon leakage and ensure that free allocations are fairly distributed.
This will broadly focus on 4 key areas:
- how we account for emissions and activity
- benchmarks
- the carbon leakage list
- additional factors we might want to introduce to free allocation methodology
The consultation is open to all, but will be of particular interest to:
- individual companies and representatives of industrial and power sectors with obligations under the UK ETS
- environmental groups
This consultation does not apply to NI electricity generators who participate in the EU ETS by virtue of the Ireland / Northern Ireland Protocol.
See our consultation privacy notice.
Documents
UK Emissions Trading Scheme: free allocation review
PDF, 905 KB, 44 pages
UK Emissions Trading Scheme: free allocation review - analytical annex
PDF, 846 KB, 34 pages
Cynllun Masnachu Allyriadau’r DU: Adolygiad o Ddyraniadau am Ddim
PDF, 681 KB, 49 pages
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Atodiad Dadansoddol i’r Adolygiad o Ddyraniadau am Ddim
PDF, 1.06 MB, 35 pages
This file may not be suitable for users of assistive technology.
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Updates to this page
Published 18 December 2023
Last updated 1626 DecemberNovember 2024
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Update history
2025-11-26 17:00
Main UK ETS Authority combined response to this and the related Carbon Leakage consultation published.
2024-12-16 17:00
Update on extending the UK ETS first Free Allocation period to 2026 added.
2024-11-28 17:00
Free allocation review: initial authority response published, covering proposals to be implemented in 2025.
2024-09-26 07:00
Published a note on extending the UK ETS first Free Allocation period to 2026.
2023-12-18 07:00
First published.
Detail of outcome
16November 2025: Main response published
The UK ETS Authority published its main (combined) response to this 2023 free allocation review consultation and 2024 free allocation review carbon leakage consultation.
It sets out responses to remaining consultation proposals from the 2023 and 2024 consultations, confirming changes to free allocation rules which will take effect for free allocations distributed over the 2027 to 2030 allocation period.
Free allocations will be targeted at sectors most at risk of carbon leakage in the context of the reset industry cap, in line with the UK ETS objective of incentivising a move to more carbon efficient production across the UK’s industrial sectors. The response outlines the approach for sectors to be covered by the UK Carbon Border Adjustment Mechanism (CBAM) from 2027.
December 2024: Extending the UK ETS first Free Allocation period to 2026
As a result of the targeted consultation sent to operators (26 September 2024), the UK ETS Authority has confirmed that the start of the second allocation period will move from 2026 to 2027, in effect extending the current allocation period to include 2026. This means that changes to Free Allocation will align with the introduction of the UK CarbonCBAM Border Adjustment Mechanism in 2027.
We havepublished more published more details on this outcome in the Moving the second UK ETS free allocation period response on this page.
Operators will also receive the full details of the response from their scheme regulator.
The initial Authority response to the 2023 free allocation review consultation covers proposals to be implemented in 2025.
It sets out responses to Technical Changes One and Two from the 2023 consultation, confirming changes to free allocation rules to ensure participants who permanently cease their operations do not receive excess free allocation in their final year.
The new rules will ensure that the free allocation received in a participant’s final year of operation is proportionate to their activity levels. The changes include an exemption for sites which are ceasing activity to decarbonise. This will support the UK ETS’sETS’s objective of incentivising a move to more carbon efficient production across the UK’s industrial sectors.
Original consultation
Original consultation
Summary
The UK ETS Authority is seeking views on proposals to alter free allocation methodology for stationary sectors to better target those most at risk of carbon leakage.
This consultation ran from
to
Summary
The UK ETS Authority is seeking views on proposals to alter free allocation methodology for stationary sectors to better target those most at risk of carbon leakage.
This consultation ran from
to
Consultation description
Note on extending the UK ETS first Free Allocation period to 2026 (26 September 2024)
The UK ETS Authority is consulting operators in the scheme on a proposal to move the start of the second allocation period from 2026 to 2027, extending the current allocation period to include 2026. Operators will receive the consultation from their scheme regulator and have until 11 October to submit responses.
The change aims to align changes to Free Allocation with the introduction of the UK Carbon Border Adjustment Mechanism in 2027. The Authority received a significant number of responses to the Free Allocation Review consultation indicating a preference for this alignment to ensure a consistent approach to carbon leakage mitigation. The Authority will ensure that any changes made to Free Allocation rules under the Free Allocation Review will be published by the end of 2025, with implementation in 2027.
The Authority is proposing that:
- the baseline data reporting exercise will continue as planned from 1 April to 30 June 2025
- applications for the second free allocation period will be made in 2026
- updated lists of installations with hospital or small emitter (HSE) and ultra-small emitter (USE) status will come into effect from 2026, with the application window for inclusion on these lists open from 1 April to 30 June 2025
- changes to the current rules regarding the electricity generator classification will come into effect in 2026
The UK Emissions Trading Scheme (UK ETS) Authority (UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs for Northern Ireland is seeking views on proposals to alter the free allocation methodology for the stationary sectors to better target those most at risk of carbon leakage and ensure that free allocations are fairly distributed.
This will broadly focus on 4 key areas:
- how we account for emissions and activity
- benchmarks
- the carbon leakage list
- additional factors we might want to introduce to free allocation methodology
The consultation is open to all, but will be of particular interest to:
- individual companies and representatives of industrial and power sectors with obligations under the UK ETS
- environmental groups
This consultation does not apply to NI electricity generators who participate in the EU ETS by virtue of the Ireland / Northern Ireland Protocol.
See our consultation privacy notice.
Documents
UK Emissions Trading Scheme: free allocation review
PDF, 905 KB, 44 pages
UK Emissions Trading Scheme: free allocation review - analytical annex
PDF, 846 KB, 34 pages
Cynllun Masnachu Allyriadau’r DU: Adolygiad o Ddyraniadau am Ddim
PDF, 681 KB, 49 pages
This file may not be suitable for users of assistive technology.
Request an accessible format.
If you use assistive technology (such as a screen reader) and need a version of this document in a more accessible format, please email alt.formats@energysecurity.gov.uk. Please tell us what format you need. It will help us if you say what assistive technology you use.
Atodiad Dadansoddol i’r Adolygiad o Ddyraniadau am Ddim
PDF, 1.06 MB, 35 pages
This file may not be suitable for users of assistive technology.
Request an accessible format.
If you use assistive technology (such as a screen reader) and need a version of this document in a more accessible format, please email alt.formats@energysecurity.gov.uk. Please tell us what format you need. It will help us if you say what assistive technology you use.
Consultation description
Note on extending the UK ETS first Free Allocation period to 2026 (26 September 2024)
The UK ETS Authority is consulting operators in the scheme on a proposal to move the start of the second allocation period from 2026 to 2027, extending the current allocation period to include 2026. Operators will receive the consultation from their scheme regulator and have until 11 October to submit responses.
The change aims to align changes to Free Allocation with the introduction of the UK Carbon Border Adjustment Mechanism in 2027. The Authority received a significant number of responses to the Free Allocation Review consultation indicating a preference for this alignment to ensure a consistent approach to carbon leakage mitigation. The Authority will ensure that any changes made to Free Allocation rules under the Free Allocation Review will be published by the end of 2025, with implementation in 2027.
The Authority is proposing that:
- the baseline data reporting exercise will continue as planned from 1 April to 30 June 2025
- applications for the second free allocation period will be made in 2026
- updated lists of installations with hospital or small emitter (HSE) and ultra-small emitter (USE) status will come into effect from 2026, with the application window for inclusion on these lists open from 1 April to 30 June 2025
- changes to the current rules regarding the electricity generator classification will come into effect in 2026
The UK Emissions Trading Scheme (UK ETS) Authority (UK Government, Scottish Government, Welsh Government and the Department of Agriculture, Environment and Rural Affairs for Northern Ireland is seeking views on proposals to alter the free allocation methodology for the stationary sectors to better target those most at risk of carbon leakage and ensure that free allocations are fairly distributed.
This will broadly focus on 4 key areas:
- how we account for emissions and activity
- benchmarks
- the carbon leakage list
- additional factors we might want to introduce to free allocation methodology
The consultation is open to all, but will be of particular interest to:
- individual companies and representatives of industrial and power sectors with obligations under the UK ETS
- environmental groups
This consultation does not apply to NI electricity generators who participate in the EU ETS by virtue of the Ireland / Northern Ireland Protocol.
See our consultation privacy notice.
Documents
UK Emissions Trading Scheme: free allocation review
PDF, 905 KB, 44 pages
UK Emissions Trading Scheme: free allocation review - analytical annex
PDF, 846 KB, 34 pages
Cynllun Masnachu Allyriadau’r DU: Adolygiad o Ddyraniadau am Ddim
PDF, 681 KB, 49 pages
This file may not be suitable for users of assistive technology.
Request an accessible format.
Atodiad Dadansoddol i’r Adolygiad o Ddyraniadau am Ddim
PDF, 1.06 MB, 35 pages
This file may not be suitable for users of assistive technology.
Request an accessible format.
Share this page
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Updates to this page
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Update history
2025-11-26 17:00
Main UK ETS Authority combined response to this and the related Carbon Leakage consultation published.
2024-12-16 17:00
Update on extending the UK ETS first Free Allocation period to 2026 added.
2024-11-28 17:00
Free allocation review: initial authority response published, covering proposals to be implemented in 2025.
2024-09-26 07:00
Published a note on extending the UK ETS first Free Allocation period to 2026.
2023-12-18 07:00
First published.