Britain considers new terms for UK ETS free allocation

The UK government has confirmed that it will align reforms to the free allocation of allowances under the national ETS with the planned introduction of its own counterpart, CBAM. Reuters informs about it.

The beginning of the second period of free allocation of quotas is proposed to be postponed by a year, until 2027. The initial period was to last from 2021 to 2025, but may be extended to 2026.

The proposal was received for consultation, the deadline for submission of answers from the scheme operators is until October 11, 2024. The UK’s Department of Energy Security and Net Zero, in particular, is proposing that reporting for the current period be submitted from April 1 to June 30, 2025, as planned, and applications for the second free allocation period in 2026.

The country launched a national emissions trading system in 2021. Currently, the free allowance allocation mechanism is in place for eligible participants as well as aircraft operators facing international competitors that do not have the additional burden of carbon costs.

As the industry association UK Steel noted, without an agreement on these points, the country’s metallurgists could face a reduction in free quotas. This would result in higher carbon costs, while imported steel would continue to avoid them.

However, UK Steel remains concerned about the risk of trade reorientation from the full launch of the European CBAM in 2026. This could lead to high-emission steel being diverted to the UK market. Delaying ETS reform would mean that at least existing protections would not be reduced in 2026, helping to potentially reduce risks.

As GMK Center reported earlier, the British steel industry urges to speed up implementation of the CBAM analogue, moving it to 2026 and synchronizing the introduction of the mechanism with the European one. UK Steel CEO Gareth Stace explained that the delay would lead to dumped supplies of high-emission metal products to the country. He expressed fears that the Treasury of Great Britain underestimates how quickly trade flows in the steel market can change.