The UK Emissions Trading Scheme Authority (UK ETS), the joint body comprising the UK, Scottish and Welsh governments and the Department of Agriculture, Environment and Rural Affairs in Northern Ireland, has announced new plans to lower emission levels of energy-intensive industries in line with net zero goals.

The move, however, has drawn criticism from the UK’s aviation sector, with trade body Airlines UK urging the government to use the levied funds to boost sustainable aviation fuel (Saf) production. 

The scheme, which has been in place since 2021 and was created to replace the UK’s participation in the EU ETS, limits the amount of greenhouse gases produced by sectors such as aviation, and looks to incentivise industries away from fossil fuels to invest in cleaner technologies.

The scheme incentivises decarbonisation through a process of buying and selling emissions allowances, which companies must obtain for every tonne of emissions they produce each year. Companies that are successful in reducing their emissions can sell unused allowances to other firms.

The UK ETS aims to support companies facing overseas competition with free emissions allowances, to ensure their efforts to decarbonise are not undermined by higher-carbon competitors – known as carbon leakage.

However, the UK ETS announced on Monday (3 July) it will phase out free allocations for aviation in 2026 after evidence of “minimal risk” of carbon leakage. Instead, aviation businesses will be required to buy allowances for each tonne of carbon emitted under the scheme, while free allocation entitlement will continue in 2024 and 2025.

Reacting to the change, Airlines UK chief executive Tim Alderslade said: “Airlines expected to pay billions of pounds more this decade to the government through the removal of our free ETS allowances. But that money should be invested – as the ETS scheme was originally designed for – into measures to support our decarbonisation, as is happening across the EU.

“This means ensuring the availability of the cheapest possible Saf (sustainable aviation fuel), reducing costs for consumers and incentivising the production of Saf here in the UK by bringing in a price support mechanism as in other sectors so that industry can meet the government’s 10% Saf mandate, plus its commitment to having at least five UK Saf plants under construction by 2025.

“Without matching these incentives, the UK will be one of the most expensive places in the developed world to use Saf, increasing our reliance on imported Saf and leaving us even further behind our global competitors in the race to lead aviation’s jet zero transition, with all the jobs and growth potential that will accompany it.”