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Market Monitor – U.K. Carbon Market Developements

The Department of Business, Energy, and Industrial Strategy Announces Plan for New Emission
Trading Scheme

Plans for a new ETS have been introduced to replace the current EU ETS that the U.K. follows. The new plan, developed jointly
with Scotland, Wales, and Northern Ireland, will exhibit greater climate ambition from the start by lowering the existing
emissions cap by 5%.

The scheme will run from 2021 to 2030, and cover 33% of the U.K.’s greenhouse gas output. The U.K. will remain open to
considering a link between any future U.K. ETS and the EU ETS if it suited both sides interest.

The aim of the new plan will be to align the emissions cap with a net zero emissions trajectory that will be implemented by
2023 if possible and no later than January 2024 with a one‐year notice to industry as forewarning.

New scheme will be launched once the Brexit process has finished and will apply to energy intensive industries (EIIs), power
generation sector, and aviation. It will cover activities involving combustion of fuels in installations with a total rated thermal
input exceeding 20MW.

Auctioning will continue to be the primary means of introducing carbon allowances with a proportion of allowances to
allocated for free. Some free allowances will also be available to new stationary entrants to the ETS as well as existing
operators who increase their activities.

In the new scheme, a transitional Auction Reserve Price (ARP) of £15/mt will be introduced to ensure a minimal level of
ambition and price continuity during the initial years of the U.K. ETS.

In first and second year of the new scheme, a Cost Containment Mechanism (CCM) will have lower prices and time triggers,
providing a mechanism for the government to intervene should very high prices result.

The introduction of a new and more stringent U.K. Emissions Trading Scheme has the potential to boost electricity prices in
the U.K. in the coming years.

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