In the upcoming year, the UK’s emissions trading scheme (ETS) will reduce its volume of carbon allowances for sale by 12.4pc. Since the scheme is legally obligated to achieve zero net emissions by 2050, the allowances will gradually decrease each year, as evidenced in the upcoming year when they will be reduced to 69mn, down from the current 79mn.
To mitigate the impact of this decline, the UK ETS will allocate unused allowances from 2021-23 to upcoming auctions in 2024-27, with each auction offering 2.76mn permits. The auctions will maintain their current schedule throughout the next year.
The percentage of free supply to the industry will increase from 37pc to 40pc in the upcoming year. The government also plans to utilize the scheme’s reserve to address the cross-sectoral correction factor (CSCF) from 2024 to 2026, thereby safeguarding the current levels of free allocation.