UK Law and Practice Contributed by: Ruth Knox and Julian Wolfgramm-King, Paul Hastings LLP
Authority, which publishes the carbon price every year. The EA and FCA are the regulators for the UK ETS. The UK ETS also applies to GHG emissions from UK domestic flights, flights between the UK and Gibraltar and flights from the UK to the EEA. Since 1 July 2026, the UK ETS covers domestic mari - time transport on ships of 5,000 GT and above operat - ing on domestic UK routes and in UK ports. Other command and control measures applied to GHG emissions Sector and non-sector specific regulatory regimes specify command and control measures in respect of GHG emissions from certain businesses – eg, the automotive sector is regulated by the Vehicle Emis - sions Trading Scheme Order 2023, which implements the UK’s net zero strategy through requiring a cer - tain percentage of manufacturers’ new car and van sales to be zero emission from 2024. The Environ - mental Permitting Regulations 2016 also specify limits for emissions of certain GHGs by certain permitted installations – eg, nitrogen dioxide emission limits for certain combustion plants. Carbon tax / levies The Climate Change Levy (CCL) is an environmental tax charged on the energy (electricity, natural gas, liq - uid petroleum, liquid hydrocarbon gas, solid fuels) that businesses use. The main rates of the CCL for gas, electricity and solid fuels were recently increased in line with the Retail Price Index however the rate for liq - uefied petroleum gas remains frozen. A Carbon Price Support (CPS) rate is applied to supply of fossil fuels for use in electricity generation in order to encourage the generation of low carbon electricity by increasing the price paid for emitting carbon dioxide. Climate Change Agreements (CCA) are voluntary agreements between sector associations and the EA and embed targets for energy-intensive installations to improve energy efficiency or reduce their carbon footprint, in return for which they benefit from reduced CCL rates. The CCA scheme was expanded in April 2026 to capture production of automotive grade bat - tery cells, packaging of spirits, and mechanical recy - cling of plastics.
UK Carbon Border Adjustment Mechanism UK Government issued a consultation in March 2024 on the creation of a UK carbon border adjustment mechanism (UK CBAM), which would apply a levy on the GHG emissions embedded in certain carbon- intensive imported products from 1 January 2027. The levy seeks to create a situation where the price paid for the goods is comparable to what they would have cost had they been produced in the UK. Associated changes to the UK ETS (eg, reduced free allocations of UK allowances), coupled with UK CBAM, seek to move the UK towards decarbonisa - tion. The second allocation period of UK ETS will be delayed by one year in order to align with the launch of UK CBAM in 2027. Businesses will be expected to file their first returns by 31 May 2028, and maintain quarterly records for six years. UK CBAM will apply to imports of aluminium, cement, fertilisers, hydrogen, iron and steel. Those subject to UK CBAM will be required to submit a CBAM return and pay a fee at the end of each accounting period based on the carbon content of their imports and the UK’s carbon price. In May 2025, a common understanding issued by the European Commission and the UK indicates that any linking agreement in respect of the EU and UK ETS should create the conditions for goods originating from the EU and UK to benefit from mutual exemp - tions from the respective UK and EU CBAMs. The final secondary legislation implementing CBAM into English law will be published later this year. Incentive schemes Low Carbon Power Incentives – Renewables Obliga - tion/Contracts for Difference The generation of low carbon power in the UK has historically been subject to a number of incentive schemes regulated by Ofgem and various implement - ing legislative instruments. For instance, the Renewa - bles Obligation, introduced in 2002, requires electric - ity suppliers to source a specific proportion of their electricity from renewable sources. This is achieved through requiring UK electricity suppliers to present a certain number of Renewables Obligation certificates
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