UK Emissions Trading Scheme

UK businesses are advised to be aware of the UK Emissions Trading Scheme. The ETS is a system of carbon reduction and trading, historically for UK businesses in energy-intensive sectors, but will be increasingly relevant for any industry that creates products derived from fossil fuels, such as those made from plastic.

The scheme, which was made legally binding in 2019, “will make a significant contribution to how we meet our Net Zero 2050 target”. By imposing a cost on carbon emissions, the UK ETS is intended to create a financial incentive for industries to decarbonise. Currently, the UK ETS applies to three specific sectors: energy-intensive industries Such as steelmaking or glassmaking), power generation and aviation. From 2028 it will be expanded include waste incineration and energy from waste (energy recovery facilities or ERFs). This will have implications for businesses and consumers alike who produce and purchase ‘consumer goods’ made of fossil fuels and then dispose of them in waste.

How does this impact businesses?

Materials such as dense plastic and plastic film release large amounts of CO2 emissions per tonne of waste burnt when compared to biogenic materials such as paper and wood.

The ETS places a price on each tonne of emissions by issuing allowances which, from 2028, operators of Energy Recovery Facilities (ERFs) will join other energy intensive sectors in having to purchase. The allowances be can traded in a ‘cap and trade’ system which does not seek to control how and where emissions are created. Rather by allocating a financial value to each unit of emissions, it leaves that up to “the market”.

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Crucially, every year the overall cap is lowered in pursuit of the country’s overall net zero ambitions, which will likely cause the cost of emissions allowances to rise and as a result increase the financial case for decarbonisation. However, if the rate of decarbonisation in materials collected for waste disposal in ERFs is too slow, then ERF operators will seek to pass their increased costs in purchasing capped Emissions allowances back down the chain.

Whilst many of the factors involved are still unknown, what is clear is that local authority and private sector waste services alike using ERFs to treat residual waste, could face significant new waste disposal costs – gate fees - for any high carbon content waste delivered to the ERFs for disposal. These costs will in turn have to be recovered. This may mean ordinary companies facing higher unit waste disposal charges. For residents, it could lead to increases in council tax, or in extreme cases, reductions in other council services.

For producers of packaging the ETS will also result in significant extended producer responsibility costs for packaging made from fossil fuels.

This is relevant now because to support the scheme from this year, legislative changes require industries in the UK ETS to cut emissions at a rate consistent with net zero ambitions.

How should we respond to expansion of the ETS?

The ETS is focused on residual waste - and therefore the collective reaction should be 2-fold.

Firstly, householders and businesses need to minimise the amount of residual waste being collected from households and businesses by driving down unnecessary consumption in the first place, reusing as much as possible and recycling more.

Secondly, we need systematic change to drive down the amount of ‘stuff’ we usefrom packaging, to textiles to other regularly consumed goods particularly those made from plastics. We can do this by switching to alternatives – including reusables - where possible and in doing so indicate new consumer preferences to producers to respond to.

The more we drive down the ‘plastic content’ of our residual waste stream the less impact the ETS will have.

For more details on the UK Emissions Trading Scheme, who it applies to and how it works, please see: https://www.gov.uk/government/ publications/participating-in-the-uk-ets