The UK Emissions Trading Scheme - UK ETS - was established in January 2021 as a standalone carbon market to replace the UK’s participation in the EU ETS following Brexit. Operating on a similar cap-and-trade system, the UK EST sets a legally binding limit on the total volume of GHG that regulated industries can emit. To comply, companies must acquire and surrender one UK Allowance - UKA - for every tonne of CO2 equivalent they release, purchasing them through auctions or trading them on the open market. This scheme regulates approximately 25% of the nation’s territorial emissions, primarily targeting manufacturing industries, power generation and aviation operators flying domestic routes or departing for the EEA.

The system has undergone aggressive expansion to accelerate de-carbonisation across its secondary phase. In early 2026, the UK ETS eliminated free carbon allocations for the aviation sector, increasing the financial exposure of commercial airlines. Furthermore, the framework expanded to include domestic maritime shipping, mandating that cargo and passenger vessels of 5000 gross tonnes or more report and pay 100% of their greenhouse gasses - including CO2, methane and nitrous oxide. Offshore vessels are slated for inclusion shortly after in January 2027, alongside planned rollouts for waste incineration and energy-from-waste plants. To ensure British manufacturers remain competitive amid rising carbon prices, the UK government is also introducing its own Carbon Border Adjustment Mechanism - UK CBAM - in January 2027, applying a carbon tariff to emissions-intensive imports such as steel, cement or aluminum.