UK Paves the Way: Carbon Removals Set for Integration into Emissions Trading Scheme

The UK Government has confirmed a pivotal step in its journey towards net zero: the integration of Greenhouse Gas Removals (GGRs) into the UK Emissions Trading Scheme (ETS). This move, outlined in the "Integrating Greenhouse Gas Removals in the UK ETS" consultation response, is anticipated to be legislated by the end of 2028, with integration operational by the end of 2029. This development marks a significant milestone not only for the UK's climate goals but also in setting a precedent for other jurisdictions considering similar integrations.

The primary purpose of the UK ETS is to drive cost-effective emissions reductions, and GGRs are crucial for balancing residual emissions from hard-to-abate sectors to reach net zero. The integration aims to scale up removals deployment while maintaining steep emissions reductions, creating an efficient market for both.

Here are the key policy decisions shaping this transformative integration:

Ex-post Issuance of Allowances:
GGR allowances will be awarded to operators only once carbon sequestration has taken place and been verified. This ex-post approach prioritises robust verification, strong environmental integrity, and market stability, ensuring that all allowances represent genuine and verified carbon removal. It aims to build confidence and transparency in the market.

A Robust Permanence Framework:
The Authority considers the permanence of carbon storage paramount for environmental integrity. To address this, a comprehensive permanence framework will be adopted, consisting of:

Minimum Storage Period: Projects will be required to demonstrate a minimum carbon storage period of 200 years to be eligible for entry into the UK ETS. This duration, more ambitious than many voluntary schemes, ensures high environmental integrity and tangible climate impact.
Liability Measures: Operators (or the entity responsible for stored carbon) will be obligated to take corrective action for any carbon released from storage. This mechanism, similar to those in pre-existing Carbon Capture and Storage frameworks, will be further developed.
Buffer Pools as Fungibility Measures: These act as an upfront insurance mechanism for carbon reversal events. Operators contribute a portion of their stored carbon to a shared pool, which is used to cover reversals, helping assign relative value based on reversal risks. Buffer pools are preferred for their established nature, transparency, and clear methodology.

Maintaining the Gross Cap ("One In, One Out"):
For initial integration, the UK ETS will maintain its gross cap by replacing emissions allowances (UKAs) with GGR allowances on a one-for-one basis. This "one in, one out" system ensures the total number of allowances remains consistent with the pre-integration trajectory, preserving market stability and, critically, maintaining the incentive to decarbonise. This also means only removals that have taken place in the UK will be eligible for UK ETS allowances for initial integration, directly contributing to the UK’s carbon budgets and net zero targets.

Allowance Differentiation:
The Authority is minded to differentiate between GGR allowances and existing UK emissions allowances (UKAs). This differentiation, likely to be generic (signifying carbon removal without technology specifics), aims to increase transparency and enable price discovery. The majority of stakeholders expect this to lead to a higher price for differentiated removal allowances due to increased price discovery and voluntary demand.

Auctions as a Route to Market:
The Authority intends to provide auctions to facilitate a route to market for GGR operators. This approach supports the deployment of high-quality removals by offering demand certainty and an established pathway for operators of all sizes and technology types. The Authority is exploring various formats, including Product Mix Auctions, to ensure efficiency and minimise market disruption.

Governance and Scope

The design and Monitoring, Reporting and Verification (MRV) for engineered GGR operators under the UK ETS will align with the UK GGR Standard, which is currently under development. This standardisation is crucial for ensuring the highest quality of removals and maintaining market confidence.

Initial integration will focus on engineered GGRs like Direct Air Carbon Capture and Storage (DACCS) and Bioenergy with Carbon Capture and Storage (BECCS).

Regarding woodland removals, the Authority has not yet made a final decision on their inclusion. While stakeholders have raised concerns about permanence, cost, and wider impacts, new evidence suggests a strong case for integration, provided carefully designed safeguards are in place. Should woodland be included, allowances would be awarded ex-post, subject to the full permanence framework (including the 200-year minimum storage period and buffer pool contributions), and potentially differentiated.

Conversely, peatland restoration is not currently being considered for inclusion. This is because peatland restoration is primarily viewed as an emission reduction technology rather than an overall carbon removal, and a robust methodology for validating its net carbon removal is still needed.

Looking Ahead

This policy development is a powerful signal that the transition from voluntary to compliance carbon markets is taking shape. While transitional supply controls will be implemented to ensure market stability, the Authority aims to avoid demand controls, such as limits on the proportion of GGR allowances used for compliance, to foster an open and competitive market. In the longer term, the Authority recognises the potential benefits of moving to a net cap, where only emissions allowances are capped, allowing removal allowances to enter above this limit, which could underpin an economically efficient approach to net zero once the GGR market matures and residual emissions are largely hard-to-abate.

As the UK builds this robust framework for integrating GGRs, it's like adding a crucial new engine to a car that's already driving towards a destination. This new engine, powered by verified carbon removal, will help us reach net zero faster and more efficiently, complementing the existing efforts to reduce emissions at the source. For companies seeking to navigate this evolving landscape, CarbonCompared.com offers a seamless, free way to compare high-integrity carbon removal credits and projects side-by-side, helping you find the right fit and move from insight to impact.