# The Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025, Note: Explanatory note

Extent: E+W+S+N.I.

(This note is not part of the Order)
The United Kingdom Emissions Trading Scheme (the “UK ETS”) was established by the Greenhouse Gas Emissions Trading Scheme Order 2020 (the “UK ETS Order”). The UK ETS runs for 10 “scheme years”, currently split into two 5-year “allocation periods”. Operators of certain industrial installations are required to monitor, submit verified reports on, and surrender “allowances” equivalent to, their greenhouse gas emissions each scheme year. Allowances (which are tradable) are held in accounts in the UK ETS registry, and there is a cap on the number of allowances that may be created. Allowances are sold at auction, but some operators of installations and aircraft operators receive an allocation of allowances free of charge for each scheme year. For installations that meet the eligibility criteria, there are two schemes as an alternative to the main scheme – the “HSE scheme” for “hospitals or small emitters” and the “USE scheme” for “ultra-small emitters”.
As well as making free-standing provision in Part 2, this Order amends the UK ETS Order, Commission Delegated Regulation (EU) 2019/331 (the “Free Allocation Regulation”) and Commission Implementing Regulation (EU) 2019/1842 (the “Activity Level Changes Regulation”).
The main change made by this Order is to split the forthcoming 2026-2030 allocation period into a 1-year allocation period covering the 2026 scheme year – the “2026 allocation period” - and a 4-year allocation period covering the 2027-2030 scheme years – the “2027-2030 allocation period”.
The process for “incumbent” installations to apply for free allocation in the 2027-2030 allocation period consists of two stages, to be completed between 1 April-30 June 2025 and 1 April-30 June 2026 (see amendments to Article 4 of the Free Allocation Regulation). During the first stage, operators are required to submit data. During the second stage, operators are required to confirm that they wish the application to proceed; and some operators may be required to resubmit data submitted as part of the first stage to take account of any changes to free allocation rules made after the first stage.
For installations that benefit from free allocation in the current 2021-2025 allocation period, free allocation in the 2026 allocation period will generally be based on data used to calculate free allocation for the current period without the need for a further application (see article 6 of this Order). Operators of other installations will receive free allocation in the 2026 allocation period based on data submitted as part of the first stage of an application for free allocation in the 2027-2030 allocation period (see article 7). If the initial allocation of allowances for the 2026 scheme year approved under Part 2 of this Order exceeds the “industry cap” for 2026, any allowances required for free allocation will be allocated from the flexible reserve referred to in article 23A of the UK ETS Order (see article 8).
The HSE and USE schemes for 2026-2030 are unchanged, except that installations that began operating between 2 January 2021 and 1 January 2024 are eligible to be in the USE scheme (see amendments to paragraph 3 of Schedule 8 to the UK ETS Order). Operators of installations continue to be able to apply to be in either the HSE or USE scheme, as well for free allocation as part of the main scheme. Installations that are in either the HSE or USE scheme for 2026-2030 will receive no free allocation in the 2026 allocation period, but operators may opt to join the main scheme for the 2027-2030 allocation period and receive free allocation for that allocation period in the event of a successful application for free allocation (see new paragraph 23B of Schedule 7, and new paragraph 7A of Schedule 8, to the UK ETS Order).
In addition, more detailed information about transfers of allowances between accounts in the UK ETS registry is required to be published (see amendments to paragraph 34 of Schedule 5A to the UK ETS Order); and the purposes for which a “national authority” may disclose information obtained under the UK ETS now include for developing policy relating to climate change, etc. and to assist the Committee on Climate Change (see amendments to article 75B of the UK ETS Order).
No impact assessment has been produced for this instrument as no, or no significant, impact on the private, voluntary or public sector is foreseen.

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Source: https://www.legislation.gov.uk/uksi/2025/124/note (the official version)
Page: https://openlegislation.uk/greenhouse-gas-emissions-trading-scheme-amendment-no-2-order-2025/note
Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.