Compare ETS
Use this function to compare the design elements and characteristics of up to three ETSs from around the world.
New Zealand Emissions Trading Scheme
General Information
The New Zealand Emissions Trading Scheme (NZ ETS) was launched in 2008 and is a central climate change mitigation policy for the country. It covers roughly half of New Zealand’s GHG emissions. The “Climate Change Response Act 2002” sets the legislative framework for the NZ ETS and incorporates all of New Zealand’s key climate legislation under one Act.
The cap is set in a top-down process to align with New Zealand’s 2050 net zero targets and associated emissions budgets. Covered entities must surrender allowances for all their reported emissions.
The NZ ETS has The New Zealand Emissions Trading Scheme (NZ ETS) was launched in 2008 and is a central climate change mitigation policy for the country. Designed as an economy-wide system, excluding only the agriculture sector, it covers nearly half of New Zealand’s GHG emissions. The “Climate Change Response Act 2002” sets the legislative framework for the NZ ETS and incorporates all of New Zealand’s key climate legislation under one Act.
The cap is set in a top-down process to align with New Zealand’s 2050 net zero targets and associated emissions budgets. Covered entities must surrender allowances for all their reported emissions.
The NZ ETS has broad sectoral coverage, including forestry, stationary energy, industrial processing, liquid fossil fuels, waste, and synthetic GHGs. Allocation is based primarily on auctioning, which began in March 2021. Free allocation is only granted for emissions-intensive, trade-exposed (EITE) activities and depends on a combination of emissions intensity benchmarks, production levels, and international trade exposure. Uniquely to the NZ ETS, the forestry sector has both surrender obligations and the opportunity to earn units for emissions removals.
The agricultural sector used to face processor-level reporting obligations with the prospect of compliance obligations under the NZ ETS, but this is no longer the case.
In 2025, the government made 6 million units available for auction across four quarterly sales, down from 14.1 million units in 2024. However, all four auctions failed to clear as secondary market prices remained below the floor price of NZD 68 (USD 39.52). In line with NZ ETS auctioning regulations, all 6 million units that remained unsold after the December 2025 auction, as well as 7.1 million units held in the Cost Containment Reserve (CCR) for 2025, were permanently withdrawn from the market.
In August 2025, the government announced the annual unit supply settings for the five-year period 2026 to 2030, maintaining a tight supply trajectory through 2030. Base auction volumes, excluding CCR, will decline from 5.2 million units in 2026 to 1.7 million units in 2030. The overall limit on units, or cap, comprising all units from auctioning and industrial allocation, will decline from 16.3 million in 2026 to 9.6 million in 2030.
The 2026 auction reserve price floor is NZD 71 (USD 41.27), and the first CCR trigger price is NZD 201 (USD 116.83).
In September 2025, the government took steps to prevent productive agricultural land from being converted into exotic forestry plantations due to the NZ ETS. Parliament passed the “Climate Change Response (Emissions Trading Scheme Forestry Conversions) Amendment Bill”, restricting new ETS registrations for plantation forests on high and medium productivity land, while allowing registrations on low-productivity land.
In November 2025, the government announced amendments to the Climate Change Response Act 2002 aimed at reducing costs and improving the efficiency of NZ ETS governance. Most significantly, the government has removed the requirement for NZ ETS unit supply settings to accord with the country’s NDC, while retaining the requirement for these settings to align with New Zealand’s domestically legislated ‘Net Zero by 2050’ targets and associated emissions budgets. The changes also streamline climate governance by reducing the Climate Change Commission’s role in providing advice on emissions reduction plans and by making public consultation on emissions budgets discretionary rather than mandatory. Additional changes include moving to biennial (instead of annual) ETS supply settings updates. While some changes were passed under urgency at the end of 2025, the full legislative changes will be introduced to Parliament in 2026.
Emissions & Targets
76.4 tCO2e (2023)
By 2030: 50% reduction of net emissions below gross 2005 levels (NDC); 10% reduction of biogenic methane emissions below 2017 levels (Climate Change Response Act 2002, through an amendment in 2019)
By 2035: : 51-55% reduction of net emissions below gross 2005 levels (NDC 2.0)
By 2050: Reduce net emissions of all GHGs (except biogenic methane) to zero; reduce biogenic methane emissions to 14-24% below 2017 levels (Climate Change Response Act 2002, through an amendment in December 2025)
Average auction price: No auctions cleared in 2025
Average secondary market price: NZD 55.04 (USD 31.99)
Updated prices available here
Size & Phases
The NZ ETS has an absolute cap that is set in advance. It limits the number of New Zealand Units (NZUs) that may be released to the market from auctioning (including the CCR), industrial allocation, and from any international units (not currently allowed). There is no limit on NZUs generated from removal activities. The NZ ETS cap thus limits the volume of net emissions that are emitted by ETS regulated entities, without imposing a limit on gross emissions within the ETS.
In 2026, the cap is 16.3 Mt CO2e.
The Climate Change Response Act 2002 requires the government to set a cap on emissions covered by the NZ ETS, based on five-yearly emissions budgets and in line with New Zealand’s 2050 targets. Unit supply settings are announced over a rolling five-year period with annual updates. To provide a degree of regulatory certainty, settings for the upcoming two years can only be amended under special circumstances.
The government updated regulations for unit supply settings in September 2025, setting the annual cap for the years 2026 to 2030. In setting supply limits, the government also considers the stockpile of banked allowances already in circulation and projected unit supply from removal activities.
NZUs generated from removal activities are forecast to be 17 million units in 2026, of which 15 million would come from the forestry sector.
The NZ ETS was originally designed to operate without a specific domestic cap, as this accommodated carbon sequestration from forestry activities and a full link to the international Kyoto Protocol carbon markets. However, in 2015, the types of units eligible for compliance in the NZ ETS were restricted to NZUs. No decisions have been made on potential future access to and use of international units.
SECTORS: Sectors were gradually phased in between 2008 and 2013.
- Forestry (mandatory: deforesting pre-1990 forest land; voluntary: post-1989 forest land)
- Stationary energy
- Industrial processing
- Liquid fossil fuels
- Waste
- Synthetic GHGs
From 2011 until November 2024, companies carrying out certain agricultural activities had an obligation to report their emissions at the processor level, with farm-level reporting set to begin in 2026. Agricultural emissions were intended to enter the NZ ETS at the processor level in 2025, with pathways for farm-level participation at a later date. However, this legislation was repealed in 2024, removing agriculture activities from the NZ ETS.
TYPES OF FUEL COVERED: petrol, diesel, aviation gasoline, jet kerosene, light fuel oil, heavy fuel oil. Emissions from fuel used for international aviation and marine transport are exempt.
INCLUSION THRESHOLDS: Thresholds for participation are typically low (Detailed threshold information can be found in Schedule 3 of the Climate Change Response Act 2002 and in the Climate Change (General Exemptions) Order 2009).
- Forestry (as per definition of ‘forest cover’)
- mandatory: deforesting pre-1990 forest land (at least 1 hectare)
- voluntary: post-1989 forest land (at least 1 hectare)
- Stationary energy
- Mining or stockpiling at least 2,000 tonnes of coal per year or importing any amount of coal for combustion.
- Using geothermal fluid to generate electricity or for industrial heat (emitting more than 4,000 tCO2e per year).
- Combusting more than 1,500 tonnes of used/waste oil per year, or combusting waste tyres (no threshold)
- Extracting natural gas (no threshold).
- Industrial processing
- Producing iron and steel (more than 100 tonnes of process carbon added per year)
- Producing gold (emitting more than 5000 tCO2e per year)
- Producing cement inputs, aluminium, or glass (no thresholds)
- Liquid fossil fuels
- Owning more than 50,000 liters of any obligation fuel (petrol, diesel, aviation gasoline, jet kerosene, light fuel oil, and heavy fuel oil)
- Waste
- Operating a disposal facility (exemptions only for small remote landfills)
- Synthetic GHGs
- Importing hydrofluorocarbons (HFCs) or perfluorocarbons (PFCs) in bulk (no threshold).
- Operating electrical switchgear that contains at least 1 tonne of sulphur hexafluoride (SF₆).
Synthetic GHGs not covered by the NZ ETS (e.g., those embedded in imported products) are subject to an equivalent levy
Upstream (power, aviation, buildings, transport, maritime, fuel use in agriculture and/or forestry); point source (mining and extractives, industry, waste, forestry).
For all fossil fuels, the point of obligation is generally upstream. Some large businesses that purchase fossil fuels directly from mandatory NZ ETS participants can choose to opt into the NZ ETS rather than have the costs passed down from their suppliers.
As of December 2025, 5,417 entities were registered as participants in the NZ ETS for 6,037 different activities* of which:
- 178 entities have mandatory reporting and surrender obligations for 185 activities
- 5,283 entities have voluntary (opt-in) reporting and surrender obligations for 5,852 activities – 99% of these being post-1989 forestry removal activities.
*Some entities have obligations under multiple activities.
Allowance Allocation & Revenue
Proportion of allowances offered at auction in 2025: 31%
6 million units were made available at auction in 2025 (excluding units from the CCR) although none were sold.
FREE ALLOCATION:
Leakage protection/Industrial free allocation: Free allocation is provided to firms in 26 eligible industrial activities, based on emissions intensity benchmarks, production levels, and one of two rates of assistance. Activities are deemed eligible if two EITE criteria are met. For 2025, highly emissions-intensive activities (over 1,600 tCO2e per NZD 1 million [USD 581,250] of revenue) receive 85% free allocation, while moderately emissions-intensive activities (over 800 tCO2e per NZD 1 million [USD 581,250] of revenue) receive 55% free allocation. An activity is deemed to be trade-exposed if there is transoceanic trade in the good produced.
In 2024, 5 million NZUs were allocated for industrial EITE activities.
Industrial free allocation is being phased down. A minimum annual phase-down rate of 1% across all industrial activities applies from 2021 to 2030. That rate will increase to 2% for the years 2031 to 2040, and to 3% for 2041 to 2050. The phase-down rate can be increased for activities that are considered at lower risk of carbon leakage alongside other criteria as set in legislation. It can also be decreased after 2030 if carbon leakage risk remains. All adjustments first require recommendations from the independent Climate Change Commission.
AUCTIONING:
Auctioning was introduced in 2021. The volume of NZUs made available for auctioning is set on an annual basis, five years in advance (see ‘Cap’ section). The annual quantity is split between the quarterly auctions. In 2025, 6 million allowances were made available for auctioning, plus an additional 7.1 million allowances in the CCR. No NZUs were sold in 2025.
Auctions follow a sealed-bid, single-round format. The clearing price is set at the lowest successful bid and NZUs are sold to all successful bidders at this price, providing it is not below the confidential reserve price (see ‘Market Stability Provisions’ section). If the auction does not clear, all allowances on offer are rolled forward to the next auction within the same calendar year. Any units that remain unsold after the last auction of the year are permanently withdrawn from the market.
ALLOWANCES GRANTED FOR REMOVALS:
Post-1989 forestry sector and other removal activities: NZUs are granted to participants that voluntarily register in the scheme for removal activities.
Forestry removal activities: Participants are entitled to receive one NZU per tCO2 removed for registered post-1989 forest land. If the forest is harvested or the land is permanently deforested, units must be surrendered to account for the emissions. If the participant chooses to deregister from the scheme, NZUs equivalent to the number received must be returned. 11.5 million NZUs were issued for forest removal activities in 2024.
Other removal activities: 1.4 million allowances were granted in 2024 for other removal activities, such as destroying synthetic GHGs or producing and exporting a product with embedded GHGs, such as methanol.
In 2019, forest carbon accounting shifted from the short term “stock change” to the long term “averaging” method for post-1989 forests, which then became compulsory for new entrants since 2023. Under the new method, allowances are granted only up to the long-term average carbon stock of the forest and therefore do not need to be surrendered at harvest, as long as replanting occurs.
NZD 5.6 billion (USD 3.7 billion) since the beginning of the program
NZD 5.7 million (USD 3.3 million) in 2025
- General budget, including debt reduction
When NZ ETS auctioning commenced in March 2021, proceeds were allocated to the Climate Emergency Response Fund (CERF), which funded climate-related initiatives including decarbonisation, public transport, and international climate finance. In 2024, the government closed the CERF so that ETS revenue is no longer ring-fenced and climate investment proposals now go through the standard government Budget process.
Approximately NZD 2.6 billion (USD 1.5 billion) of existing CERF initiatives were retained. These include:
- Funding for nationwide low-emission transport, such as electric vehicle charging infrastructure and grants for clean heavy vehicles
- Measures to decarbonise public transport and improve access, including support for local government to purchase electric buses and providing public transport concessions for low-income citizens
- International climate finance contributions
- Support for upgrades aimed at lowering energy bills and emissions in low-income homes
Flexibility & Linking
Banking is allowed. NZUs do not expire.
Borrowing is not allowed.
The use of offset credits is not allowed.
However, NZUs granted for forestry and other removals may be considered as offsetting emissions within the scope of the NZ ETS.
Units from Kyoto Protocol flexibility mechanisms were eligible for use in the system with no restrictions until June 2015 but have since been ineligible. Access to high-integrity international carbon markets may be part of New Zealand’s strategy to meet its 2030 target. The government can decide to allow international units as part of the annual unit supply-setting process.
The NZ ETS is not linked with any other system.
Until June 2015, the NZ ETS was indirectly linked to other systems (e.g., the EU ETS) via the international Kyoto Protocol flexible mechanisms. Since then, the NZ ETS has been an exclusively domestic system.
Carbon tax: Synthetic GHG levy
Compliance
For most sectors, the NZ ETS has annual surrender obligations. For post-1989 forestry participants, annual reporting of emissions and removals is optional, with five-year mandatory reporting periods. As a result, unit allocations and surrenders for these participants occur in the year they choose to submit reports.
FRAMEWORK: The legal framework is established by the Climate Change Response Act 2002. This Act legally requires participants to monitor their activities, report emissions annually, and surrender the corresponding number of units. Specific methodologies and calculation rules for each sector are detailed in supporting regulations.
MONITORING: The thresholds for MRV are the same as for mandatory inclusion in the ETS. Formal, pre-approved monitoring plans are not generally required. Instead, participants must follow the calculation methods in the regulations, unless they apply for a Unique Emissions Factor (UEF), which requires detailed information similar to a monitoring plan.
Up until 2025, entities processing agricultural products had MRV obligations without compliance obligations. This was supposed to transition to farm-level MRV in 2026. However, there are no longer any obligations for agricultural activities.
REPORTING: Most sectors (all those with mandatory participation) are required to report annually; the deadline is the end of March of the year following the reporting year to submit an Annual Emissions Return (emissions report). There is a different reporting cycle for forestry (see Compliance Cycle). Other removal activities may be reported more frequently (quarterly).
VERIFICATION: MRV follows a system of self-reporting supplemented by a program of official government audits. Each year, a sample of NZ ETS participants are selected for compliance review. Third-party verification is not required for emissions reports. However, third-party verification is required for first establishing a UEF, which may then be used in emissions reports as opposed to the default factors supplied by the government.
An entity that fails to submit an emissions report by the due date must pay a fine equal to the number of units involved, multiplied by the current unit price and a “culpability factor”.
An entity that fails to surrender or repay emissions units when required must surrender the units and pay a cash penalty of three times the current market price for each unit that was not surrendered by the due date. Entities can be fined up to NZD 24,000 (USD 13,950) on conviction for failure to collect emissions data or other required information, calculate emissions and/or removals, keep records, register as a participant, submit an Annual Emissions Return when required, or notify the administering agency or provide information when required to do so.
Entities can also be fined up to NZD 50,000 (USD 29,062) on conviction for knowingly altering, falsifying, or providing incomplete or misleading information about any obligations under the scheme, including in the Annual Emissions Return report. This penalty and/or imprisonment of up to five years also applies to entities that deliberately lie about obligations under the NZ ETS to gain financial benefit or avoid financial loss.
Market Regulation
MARKET PARTICIPATION: Any individual or organization can own and trade NZUs, if they hold an account with the NZ ETS Registry.
MARKET TYPES:
Primary: Auctions are operated jointly by NZX (New Zealand Exchange) and the European Energy Exchange (EEX) and are held four times a year. Any NZ ETS Register Account Holder can participate in the auctions. Other transfers of allowances to participants, such as industrial allocation and allocation for removals, are also considered under the primary market.
Secondary: Most NZUs are traded on the secondary market. Trades can take place directly between companies (OTC) or via a trading platform. Trades can be on a spot basis or through forward contract.
LEGAL STATUS OF ALLOWANCES: Allowances are not financial products in New Zealand law and, as a result, there is currently no single integrated market governance framework that would manage risks of misconduct in the NZ ETS. The government is currently working on options to improve market governance.
COST CONTAINMENT RESERVE (CCR)
Instrument type: Price-based instrument
Functioning: If a predetermined trigger price is reached at auction, a specified number of allowances from the CCR are additionally released for sale. The CCR follows a two-tier system, with a specific number of allowances available for auction at each trigger. The government updates the CCR trigger prices each year, together with other auction supply settings (see ‘Cap’ section).
In 2025, the volume of the CCR was set at a total of 7.1 million allowances for both triggers. The trigger price was not reached during 2025, so none of these were released to market. Currently, the volume of the reserve is set at 6.5 million in 2026, dropping annually to 3.9 million in 2030.
At the start of 2026, the first CCR trigger price is NZD 203 (USD 117.99), with a total of 2.3 million units available. The second trigger price is NZD 254 (USD 147.64), with 4.2 million units available. These triggers will rise annually to reach NZD 248 (USD 144.15) and NZD 309 (USD 179.61) respectively in 2030.
PRICE FLOOR
Instrument type: Price-based instrument
Functioning: With the start of auctioning, the government introduced a price floor operating through a reserve price or minimum accepted bid at auction.
In addition to the hard auction reserve price floor, the government introduced a confidential reserve price. This is set by referencing prices from the secondary market and uses a confidential methodology to determine a reserve price below which units cannot be sold. If it is set higher than the hard auction reserve price, then it becomes the new reserve price floor for that auction.
The hard auction reserve price floor is NZD 71 (USD 41.27) in 2026, rising annually to NZD 87 (USD 50.57) in 2030.
Other Information
Ministry for the Environment: Responsible for establishing the regulatory framework of the NZ ETS.
Environmental Protection Authority: Responsible for the NZ ETS registry and compliance.
Ministry for Primary Industries: Responsible for the forestry sector under the NZ ETS.
Climate Change Commission: Independent body providing advice on NZ ETS settings as well as other advice that might include the NZ ETS.
The Climate Change Response Act 2002 includes provisions for reviews of the operation and effectiveness of the NZ ETS. These reviews were originally required every five years, but the timing is now discretionary. The first review took place from 2011 to 2012, and the second review took place from 2015 to 2017. A third review of the NZ ETS was opened in early 2023. Following the 2023 General Election, this was closed by the new government.
Climate Change Response Act 2002—Part 4 New Zealand greenhouse gas emissions trading scheme*
* To keep New Zealand’s key climate change legislation under one act, the Climate Change Response Act incorporates both the “Climate Change Response (Emissions Trading Reform) Amendment Act 2020”, and the “Climate Change Response (Zero Carbon) Amendment Act 2019”. The “Zero Carbon Act” details domestic targets to 2050, establishes the Climate Change Commission, and mandates a process of setting and meeting five-year national emission budgets.
USA - California Cap-and-Trade Program
General Information
The California Cap-and-Invest Program began operation in 2012 with the opening of its tracking system for allocation, auction distribution, and trading of compliance instruments. Compliance obligations started in January 2013. The program was extended through 2045 and renamed Cap-and-Invest by legislation adopted in 2025. The program puts a carbon price on ~76% of the state’s GHG emissions.
The program covers fuel combustion emissions in the mining, power, buildings, transport, industrial, agriculture, and forestry sectors, as well as industrial process emissions of about 400 covered facilities. Fuel use in buildings, transportation, and in agricultural, forestry, and fishing operations is covered upstream at the fuel supplier. Covered entities must surrender allowances for all their covered emissions. Allowances are distributed via a combination of auction, free allocation, and free allocation with consignment. The proceeds from auctioning are reinvested in projects that reduce emissions, strengthening the economy, public health, and the environment, especially in disadvantaged communities.
The California Cap-and-Invest Program is implemented under the authority of the California Air Resources Board (CARB). California has been part of the Western Climate Initiative (WCI) since 2007 and formally linked its program with Québec’s in January 2014.
In September 2025, California adopted Assembly Bill 1207 (AB 1207) and Senate Bill 840 (SB 840), which extended the Cap-and-Invest Program (formerly Cap-and-Trade) through 2045 and made technical changes to the Program.
AB 1207 directs CARB to ensure that program-wide aggregate emissions from covered sources decline, at a minimum, in line with the state’s 2030 and 2045 climate targets, maintain robust price-containment mechanisms, set offset usage limits for 2031 to 2045, and remove allowances from future budgets equal to offsets used for compliance, while considering cost-effectiveness and affordability, minimizing leakage risks, and avoiding disproportionate impacts on low-income communities. SB 840 complements these changes by requiring CARB to conduct an evaluation of the Compliance Offsets Program by the end of 2026 and to update all existing compliance offset protocols to reflect the best available science by January 1, 2029.
By 2034 and every five years thereafter, SB 840 further requires CARB to evaluate all compliance offset protocols and consider whether updates are necessary to reflect the best available science. SB 840 also sets future appropriation rules for Greenhouse Gas Reduction Fund programs, including affordable housing, sustainable communities, community air monitoring, and high-speed rail.
In January 2026, CARB proposed changes to the Cap-and-Invest Regulation to implement the requirements of AB 1207. The formal rulemaking process is underway with regulatory amendments expected to be adopted and reflected in allowance budgets from 2027 onwards.
California and Québec continue to operate a joint carbon market, while California, Québec, and Washington continue discussions about potential future linkage of Washington’s program to the joint market.
Emissions & Targets
360.4 MtCO2e (2023)
By 2030: 40% reduction from 1990 GHG levels (“SB 32”)
By 2045: Carbon neutrality and 85% reduction from 1990 anthropogenic GHG levels (“AB 1279”)
Updated prices available here
- Average Current Auction price: USD 28.14* (2025)
- Average secondary market price: USD 29.10 (2025)
* “Current auction settlement price“ in USD, weighted by the total number of government-owned and consignment current vintage allowances sold in the year for both California and Québec.
Size & Phases
FIRST COMPLIANCE PERIOD: Two years (2013 to 2014)
SECOND COMPLIANCE PERIOD: Three years (2015 to 2017)
THIRD COMPLIANCE PERIOD: Three years (2018 to 2020)
FOURTH COMPLIANCE PERIOD: Three years (2021 to 2023)
FIFTH COMPLIANCE PERIOD: Three years (2024 to 2026)
SIXTH COMPLIANCE PERIOD: Three years (2027 to 2029)
An absolute cap limits the total emissions allowed in the system and is fixed ex-ante.
FIRST COMPLIANCE PERIOD: The system started in 2013 with a cap of 162.8 MtCO2e, declining to 159.7 MtCO2e in 2014, at a rate of ~2% annually.
SECOND COMPLIANCE PERIOD: With the program expanding to include fuel distribution, the cap rose to 394.5 MtCO2e in 2015. The cap decline factor averaged 3.1% per year in the second compliance period, reaching 370.4 MtCO2e.
THIRD COMPLIANCE PERIOD: The cap in the third compliance period started at 358.3 MtCO2e and declined at an average annual rate of 3.3% to 334.2 MtCO2e in 2020.
FOURTH COMPLIANCE PERIOD AND BEYOND: During the 2021 to 2030 period, the cap declines by about 13.4 MtCO2e each year, averaging ~4%, to reach 200.5 MtCO2e in 2030. The “Cap-and-Invest Regulation” (the Regulation) sets a formula for declining caps after 2030 through 2050.
Rulemaking is underway to implement recent legislative requirements and to align allowance budgets with California’s 2030 and 2045 targets.
FIRST COMPLIANCE PERIOD: Covered sectors included those that have one or more of the following processes or operations: large industrial facilities (including cement, glass, hydrogen, iron and steel, lead, lime manufacturing, nitric acid, petroleum and natural gas systems, petroleum refining, and pulp and paper manufacturing, including cogeneration facilities co-owned/operated at any of these facilities); electricity generation; electricity imports; other stationary combustion; and CO2 suppliers.
SECOND COMPLIANCE PERIOD AND BEYOND: In addition to the sectors listed above, suppliers of natural gas, suppliers of reformulatedblendstock for oxygenateblending (i.e., gasoline blendstock) and distillate fuel oil (i.e., diesel fuel), suppliers of liquefied petroleum gas in California, and suppliers of liquefied natural gas are covered by the program.
INCLUSION THRESHOLDS: Facilities emitting greater than or equal to 25,000 tCO2e per year. All electricity imported from specified sources connected to a specific generator with emissions greater than or equal to 25,000 tCO2e per year is covered. Emissions associated with imported electricity from unspecified sources have a zero threshold, and all imported electricity emissions are covered using a default emissions factor.
OPT-IN COVERED ENTITIES: A facility in one of the covered sectors that emits less than 25,000 tCO2e annually can voluntarily participate in the Program. Opt-in entities are subject to all registration, reporting, verification, compliance obligations, and enforcement applicable to covered entities.
Upstream (buildings, transport, agriculture, and forestry fuel use); point source (mining and extractives, industry, in-state power generation); imported electricity at the point of first delivery onto California’s electricity grid
~400 facilities (2025)
Allowance Allocation & Revenue
Proportion of 2025 cap auctioned as 2025 vintage units: 42.8%*
Allowances are distributed via free allocation, free allocation with consignment, and auction.
FREE ALLOCATION: Industrial facilities receive free allowances to minimize carbon leakage. For nearly all industrial facilities, the amount is determined by product-specific benchmarks, recent production volumes, a cap adjustment factor, and an assistance factor based on assessment of leakage risk. **
Leakage risk is divided into “low”, “medium”, and “high” risk tiers based on levels of emissions intensity and trade exposure for each specific industrial sector.
FIRST COMPLIANCE PERIOD: The Regulation as adopted in 2011 set assistance factors of 100% for the first compliance period, regardless of leakage risk.
SECOND COMPLIANCE PERIOD AND BEYOND: For facilities with medium leakage risk, the original regulation included an assistance factor decline to 75% for the second compliance period and to 50% for the third. For facilities with low leakage risk, it included an assistance factor decline to 50% for the second compliance period and to 30% for the third. However, amendments to the Regulation in 2013 delayed these assistance factor declines by one compliance period. Pursuant to “AB 398” adopted in 2017, all assistance factors were changed to 100% through 2030, citing continued vulnerability to carbon leakage. There is no cap on the total amount of industrial allocation, but the formula for allocation includes a declining cap adjustment factor to gradually reduce allocation in line with the overall cap trajectory.
Free allocation is also provided for transition assistance to public wholesale water entities, legacy contract generators, universities, public service facilities, and, during the period from 2018 to 2024, waste-to-energy facilities.
FREE ALLOCATION WITH CONSIGNMENT: Electrical distribution utilities and natural gas suppliers receive free allocation on behalf of their ratepayers.*** These utilities must use the allowance value for ratepayer benefit and for GHG emissions reductions. All allowances allocated to investor-owned electric utilities and an annually increasing percentage of the allocation to natural gas suppliers must be consigned for sale at the state’s regular quarterly auctions. Publicly owned electric utilities can choose to consign freely allocated allowances to auction or use them for their own compliance needs.
AUCTIONING:
- Auction share: ~67% of total California-issued vintage 2025 allowances made available through auction in 2025, which included allowances owned by CARB (~35%) and allowances consigned to auction by utilities (~32%).
- Auction volume: 174,505,948 (2025 vintage); 22,730,000 (2028 vintage).
- Share of the 2025 cap auctioned as vintage 2025 CARB-owned allowances so far: 42.8%.
Unsold allowances in past auctions are gradually released for sale at auction after two consecutive auctions are held in which the clearing price is higher than the minimum price. However, if any of these allowances remain unsold after 24 months, they will be placed into CARB’s price ceiling reserve or into the two lower reserve tiers (see ‘Market Stability Provisions’ section). To date, 37 million allowances originally designated for auction have been placed in reserves through these provisions.
* Excluding consigned allowances.
** See Section 95891(c) of the Regulation for a minor exception.
*** See Section 95892 and Section 95893 of the Regulation for further details on the approach to free allocations for electrical distribution utilities and natural gas suppliers, respectively.
USD 34.5 billion since beginning of program
USD 3.13 billion* in 2025
* Does not include revenues from the auction of consigned allowances.
Revenue from auction of California-owned allowances: Most of California’s auction revenue goes to the Greenhouse Gas Reduction Fund, of which at least 35% must benefit disadvantaged and low-income communities. The funds are then distributed as California Climate Investments, which support projects that deliver significant environmental, economic, and public health benefits across the state. As of November 2024, USD 12.8 billion had been invested in 590,703 projects, with expected GHG reductions of 116.1 MtCO2e.
Over USD 9.2 billion has reached disadvantaged and low-income communities.
Revenue from auction of utility-owned allowances: Investor-owned electric utilities and natural gas suppliers are allocated allowances, a portion of which must be consigned to auction. Auction proceeds must be used for ratepayer benefit and for GHG emissions reductions. Since the Program’s inception, approximately USD 26.5 billion in allowance value has been provided to ratepayers. Investor-owned electric utilities and natural gas suppliers have provided USD 13.5 billion directly to residential ratepayers through 2024 via the California Climate Credit.
Flexibility & Linking
Banking is allowed but is subject to a holding limit on allowances to which all entities in the system are held. The holding limit is based on the year’s cap and decreases annually. Entities may also be eligible for a limited exemption from the holding limit based on their emissions levels to support meeting annual compliance obligations or obligations at the end of a three-year compliance period.
Borrowing is not allowed.
The use of compliance offset credits is allowed. Such credits, issued by CARB or by the authority of a linked system, are compliance instruments under the California Cap-and-Invest Program.
QUALITATIVE LIMIT: Currently, offset credits originating from projects carried out according to one of the following six compliance offset protocols are accepted as compliance instruments:
- US forest projects;
- urban forest projects;
- livestock projects (methane management);
- ozone-depleting substances projects;
- mine methane capture projects; and
- rice cultivation projects.
Compliance offset credits issued by jurisdictions linked with California (i.e., Québec) are eligible, subject to the quantitative limits described below.
To ensure environmental integrity, California’s compliance offset program has incorporated the principle of buyer liability. The state may invalidate an offset credit that is later determined not to have met the requirements of its compliance offset protocol due to double counting, over-issuance, or regulatory non-conformance. The entity that surrendered the offset credit for compliance must then substitute a valid compliance instrument for the invalidated offset credit.
QUANTITATIVE LIMIT: The share of offsets that can be used by an entity to fulfill its compliance obligation is 4% per year for 2021 to 2025 emissions, and 6% for 2026 to 2045 emissions.
In addition to setting new quantitative limits on the use of offset credits, AB 398 set new limits on the types of offset credits that can be used to fulfill compliance obligations. Starting with compliance obligations for 2021 emissions, no more than 50% of any entity’s offset usage limit can come from offset projects that do not provide direct environmental benefits to the state (DEBS).
Projects located within California are automatically considered to provide DEBS. Offset projects implemented outside of California may still result in DEBS, based on scientific evidence and project data provided. For example, a forest project outside California has been determined to provide benefits within California by improving the quality of water flowing through the state. Recent regulatory amendments specify the criteria used to determine DEBS.
In November 2022, California entities surrendered ~2.2 million offset credits for a portion of 2021 emissions. In November 2023, California entities surrendered ~2 million offset credits for a portion of 2022 emissions.
In November 2024, California entities surrendered an additional 22 million credits for the remainder of their emissions during the fourth compliance period, while Québec entities surrendered 13.3 million California-issued offset credits. Of the 35.2 million credits surrendered, 26.5 million were from US forest offset projects and 5.3 million from mine methane capture projects.
In November 2025, California entities surrendered ~2.2 million offset credits at the annual compliance event for the first year of the fifth compliance period (2024), when compliance for 30% of the 2024 annual emissions was required.
California’s program linked with Québec’s in January 2014. The two expanded their joint market by linking with Ontario in January 2018 until the termination of Ontario’s system in mid-2018. In March and September 2024, joint statements from the governments of Québec, California, and Washington affirmed their commitment to explore potential linkage.
Compliance
Except for the year following the last year of a compliance period, compliance instruments equal to 30% of the previous year’s verified emissions must be surrendered annually, by the start of November. Compliance instruments equal to all remaining emissions must be surrendered by the start of November of the year following the last year of a compliance period.
FRAMEWORK: California’s MRV framework is set by the “Regulation for the Mandatory Reporting of Greenhouse Gas Emissions (MRR), title 17 California Code of Regulations (CCR) §§ 95100-95163”. The “Cap‑and‑Invest Regulation, title 17 CCR §§ 95801-96022” relies on MRR data.
MONITORING: Reporters must use calculation, monitoring, QA/QC, missing data, recordkeeping, and reporting methods specified in MRR.
MRR requires that reporters subject to the regulation maintain a GHG Monitoring Plan for facilities and suppliers that includes detailed, source‑specific monitoring and QA/QC obligations and record retention for all data used to calculate emissions, specified in MRR § 95105(c). Similarly, electric power entities that import or export electricity must maintain a GHG inventory program, as specified in MRR § 95105(d).
REPORTING: Annual reporting for the following entities based on emissions thresholds listed, using the standardized methods and formats specified in MRR:
- Facilities in specified categories (e.g., large power plants under 40 CFR Part 75, cement, lime, nitric acid, refineries, CO₂ sequestration/injection) report regardless of emissions level.
- Other facilities (e.g., stationary combustion, glass, hydrogen, iron and steel, pulp and paper, petroleum and natural gas systems, geothermal, lead) report at ≥10,000 tCO₂e/year of stationary and process emissions; petroleum and natural gas systems also apply a 25,000 tCO₂e threshold when including vented and fugitive emissions.
- Fuel and CO₂ suppliers report at ≥10,000 tCO₂e/year, calculated as volume of CO2 supplied, or based on emissions that would result from combustion of the fuels supplied
- Importers or exporters of electricity as defined in § 95102(a) with any volume of imported or exported electricity, retail providers as defined in § 95102(a), along with certain public agencies specified in § 95101(d)
VERIFICATION: Third‑party verification is required under MRR for emissions data reports of entities with a compliance obligation under the Cap‑and‑Invest Regulation and for other reporters above specified thresholds or categories, as specified in § 95103(f).
Verification requirements, including requirements for the accreditation of verification bodies and individual verifiers are specified in §§ 95130-95133. Similar accreditation and conflict‑of‑interest provisions apply to offset verifiers and verification bodies under Cap‑and‑Invest Regulation §§ 95977–95978.
Entities remain subject to annual reporting (and, where applicable, verification) under MRR until they meet the cessation conditions in § 95101(h)-(i).
A covered entity that fails to surrender sufficient compliance instruments to cover its verified GHG emissions at a relevant compliance deadline is automatically assessed an untimely surrender obligation. It is required to surrender the missing compliance instruments as well as three additional ones for each it failed to surrender.
Failure to meet this untimely surrender obligation would subject the entity to substantial financial penalties for its noncompliance, pursuant to “California Health and Safety Code Section 38580”.
Separate and substantial penalties apply to mis-reporting or non-reporting under the MRR.
Market Regulation
MARKET PARTICIPATION: Covered entities, opt-in covered entities, and voluntarily associated entities can participate in the program. Voluntarily associated entities are approved individuals or entities that intend to:
- purchase, hold, sell, or retire compliance instruments but are not covered under the program;
- operate a compliance offset project registered with CARB; or
- provide clearing services and derivative clearing services as qualified entities.
Voluntarily associated entities must be in the United States and have an approved account in the system registry, the Compliance Instrument Tracking System Service (CITSS). Additional eligibility criteria apply, including for individual market participants.
MARKET TYPES:
Primary: Allowances are made available through sealed-bid auctions. State-owned and consigned allowances are offered through quarterly allowance auctions organized jointly with Québec. Auctions are administered by WCI, Inc.
Secondary: Allowances, offset credits, and financial derivatives are traded in the secondary market on the Intercontinental Exchange (ICE), CME Group, and Nodal Exchange platforms. Any company qualified to access these platforms can trade directly or through a future commission merchant. Companies can also trade directly over the counter but must have a CITSS account to take delivery of compliance instruments.
LEGAL STATUS OF ALLOWANCES: Allowances are defined as limited tradable authorizations to emit up to one tCO2e. According to the “California Code of Regulations”, an allowance does not constitute property or bestow property rights and cannot limit the authority of the regulator to terminate or limit such authorization to emit.
AUCTION RESERVE PRICE
Instrument type: Price-based instrument
Functioning: The auction reserve price is set at USD 27.94 and CAD 26.47 per allowance in 2026.
It was initially established at USD 10.00 for the auction in 2012, and it increases annually by 5% plus inflation, as measured by the Consumer Price Index. The auction reserve price for each joint auction with Québec is determined using the minimum prices set annually by California in USD in accordance with Section 95911 of the Regulation and by Québec in CAD in accordance with Article 49 of the “Regulation respecting a cap-and-trade system for greenhouse gas emission allowances” (Québec Regulation). To manage multiple currencies, an Auction Exchange Rate is determined prior to each joint auction. The Auction Reserve Price for a joint auction is then determined as the higher of the Annual Auction Reserve Prices established in USD and CAD after applying the established Auction Exchange Rate (USD to CAD FX Rate).
ALLOWANCE PRICE CONTAINMENT RESERVE (APCR)
Instrument type: Price-based instrument
Functioning: In 2026, the two APCR tiers are set at USD 65.31 and USD 83.92 per allowance. Tier prices increase each year by 5% plus inflation, as measured by the Consumer Price Index.
At the start of the program, about 4.9% of allowances from the 2013 to 2020 budgets were placed in an APCR. Prior to amendments mandated by AB 398 in 2017, these allowances were spread across three tiers. Pursuant to AB 398, from 2021 onward, these allowances have been moved into two price tiers and a price ceiling. Currently, there are approximately 66.8 million and 89.5 million allowances in the Tier 1 and 2 reserves, respectively.
Although no APCR sale has been held so far, CARB will offer one if auction settlement prices from the preceding quarter are greater than or equal to 60% of the lowest APCR price tier. CARB also always offers the third quarter APCR sale before the November compliance obligation deadline.
ALLOWANCE PRICE CEILING
Instrument type: Price-based instrument
Functioning: In 2026, the price ceiling is set at USD 102.52. The price ceiling increases each year by 5% plus inflation, as measured by the Consumer Price Index.
At the price ceiling, a covered entity can purchase allowances (or, if no allowances remain, “price ceiling units”) up to the amount of its current unfulfilled emissions obligation. The revenues from the sale of price ceiling units will be used to purchase real, permanent, quantifiable, verifiable, enforceable, and additional emissions reductions on at least a tonne for tonne basis. Sales at the price ceiling will only be conducted if no allowances remain at the two lower APCR tiers and a covered entity has demonstrated that it does not have sufficient compliance instruments in its accounts for that year’s compliance event. Currently, there are approximately 77.7 million allowances in the Price Ceiling Account.
Other Information
California Air Resources Board: Responsible for the design and implementation of the Cap-and-Invest Program.
Western Climate Initiative, Inc.: Non-profit organization that provides cost-effective administrative and technical solutions for supporting the coordinated development and implementation of participating jurisdictions’ GHG emissions trading programs, such as administering auctions and maintaining the system registry (CITSS).
Pursuant to requirements in existing legislation (AB 32, AB 197, and AB 398), CARB must update the “California Climate Change Scoping Plan” at least every five years and must provide annual reports to various committees of the Legislature and the Board. The Scoping Plan provides updates on progress toward climate targets and lays out strategies to achieve them, including the role and level of effort accorded to different programs in the state’s portfolio approach to climate mitigation. The latest update to the Scoping Plan was adopted in December 2022.
Global Warming Solutions Act of 2006 (AB 32)
Current Cap-and-Invest regulation can be found on the dedicated CARB website.
Current MRV regulation can be found on the dedicated CARB website.
UK Emissions Trading Scheme (UK ETS)
General Information
The UK Emissions Trading Scheme (UK ETS) began operating in January 2021, following the departure of the UK (excluding power operators located in Northern Ireland) from the EU ETS. Verified emissions from stationary UK ETS operators currently account for around a quarter of the UK’s territorial GHG emissions. The first phase of the UK ETS runs until 2030.
The UK ETS covers around 1,000 installations in the power and industrial sectors, as well as around 400 aircraft operators. Aviation activity covered includes flights within the UK as well as flights departing the UK to the European Economic Area (EEA) and Switzerland. Domestic maritime emissions will be brought under the UK ETS from July 1, 2026.
Covered entities must surrender allowances for all their in-scope emissions. Allowances are allocated primarily through auctioning, with a portion freely allocated to mitigate the risk of carbon leakage. The system has both a cost containment mechanism (CCM) and an auction reserve price (ARP), to support market stability.
The UK ETS cap trajectory and system design are consistent with the UK’s target of achieving net zero by 2050. The UK ETS Authority has announced the expansion of the system to waste incineration and energy-from-waste, domestic maritime, and GHG removals, and proposed a framework to add further high emitting sectors. Additionally, the UK government is introducing a UK CBAM to begin on January 1, 2027, applying a carbon price to emissions-intensive imports.
The European Commission and the UK government have announced their intention to pursue a link between their respective systems.
In 2025, the UK ETS Authority focused on implementing previously signaled reforms, preparing for scope expansion, and setting the stage for post 2030 design. It also progressed work to align free allocation reforms with the forthcoming UK CBAM.
In February 2025, the Authority consulted on extending the UK ETS cap beyond 2030.
In May 2025, the UK and the EU agreed to work towards establishing a link between their ETSs. The envisaged link would enable mutual recognition of allowances for compliance, allow cross-system trading, and create the conditions for mutual CBAM exemptions.
In July 2025, the Authority published interim responses to the 2024 consultations on scope expansion and greenhouse gas removals (GGRs), confirming key timelines: maritime coverage from July 2026 and a voluntary MRV-only period for waste incineration and energy from waste from January 2026 ahead of full inclusion from 2028. It also confirmed the integration of UK-based engineered removals from 2029, subject to legislation and further consultation.
In November 2025, the Authority published the main response to the maritime consultation, building on the interim response earlier in the year. This sets out the final details on the expansion to domestic maritime emissions, including cap adjustment to account for the expansion, exemptions, delay to the inclusion of offshore vessels until January 2027 and future reviews. Alongside this, the Authority also launched a consultation on bringing emissions from international maritime voyages into the UK ETS, proposing to include voyages starting or ending in the UK from 2028, covering 50% of emissions related to such journeys.
In October 2025, the UK ETS Authority launched a consultation to assess the impacts on regional air connectivity following the removal of UK ETS free allocation for aviation. The consultation sought views on the potential impact on remote domestic routes, whether government action was needed to address any negative effects, the criteria for such action, and the best way to provide support. The Authority emphasized that it was not looking to shield the aviation sector from wider market or regulatory factors. The consultation closed in December 2025.
The Authority confirmed that the second free allocation period will start in 2027, with 2026 treated as an extension of the current period, ensuring that the Free Allocation Review changes and CBAM introduction take effect together. In November 2025, the final Authority response to the Free Allocation Review also confirmed rules for the next allocation period from 2027 to 2030, maintaining carbon leakage protection for sectors most at risk, while free allocation for CBAM‑covered sectors will be gradually phased out from 2027 to enable the mechanism to serve as the primary means of mitigating carbon leakage.
As announced in December 2023, and following policy consultation in 2024 and technical consultation in 2025, the government is legislating in the Finance Bill 2025-26 to introduce a CBAM from January 1, 2027. The UK CBAM will apply to goods from the following industrial sectors: aluminum, cement, fertilizers, hydrogen, iron, and steel.
In December 2025, the Authority announced the extension of the UK ETS into a second Phase running from 2031 to the end of 2040. The Authority also announced final decisions on markets policy for a standalone scheme. The Authority decided to retain and inflation-proof the Auction Reserve Price (ARP), with changes taking effect in 2026 and maintain the existing design and operation of the Cost Containment Mechanism (CCM).
Emissions & Targets
388 MtCO2e (2023)
By 2030: At least a 68% reduction in UK net GHG emissions from 1990 levels, including emissions from LULUCF (NDC 3.0)
By 2035: At least an 81% reduction in UK net GHG emissions from 1990 levels, including emissions from LULUCF (NDC 3.0)
Limit UK net GHG emissions to 965 MtCO2e over 2033 to 2037, representing ~77% reduction from 1990 levels, including emissions from LULUCF and international aviation and shipping (“Carbon Budget Order 2021”)
By 2050: Net-zero UK GHG emissions, including emissions from LULUCF and international aviation and shipping (“Climate Change Act 2008 [2050 Target Amendment] Order 2019”)
Current prices can be checked here
Size & Phases
PHASE 1: Ten years (2021 to 2030)
PHASE 2: Ten years (2031 to 2040)
An absolute cap limits the total emissions allowed in the system and is fixed ex-ante.
FIRST ALLOCATION PERIOD (2021 to 2026): 712 MtCO2e, to be adjusted to reflect the hospital and small emitter opt-outs. The first allocation period was extended to include 2026, in order to ensure that changes to free allocation rules aligned with the introduction of the UK CBAM in 2027.
SECOND ALLOCATION PERIOD (2027 to 2030)[1]: 224 MtCO2e, to be adjusted to reflect the hospital and small emitter opt-outs.
The cap was initially set at 5% below the UK’s notional share of the EU ETS cap for its fourth phase. The cumulative caps for the first and second allocation periods were originally 736 MtCO2e and 630 MtCO2e, respectively. However, they were reduced following a 2022 consultation on reforming the UK ETS, which included aligning the cap trajectory with the UK’s net-zero emissions target. The cap for 2026 is 77.4 MtCO2e. Allowances for the New Entrants’ Reserve (NER) are part of the overall cap.
[1] An Authority publication of December 2024 announced that the second allocation period would start in 2027. To effect this, a new allocation period will be created for a standalone year in 2026, however free allocations for this time will be calculated on the same basis as 2021 to 2025 free allocations.
POWER SECTOR AND INDUSTRY: The UK ETS applies to a specified list of activities of installations in the power and industrial sectors. This includes activities involving the combustion of fuels in installations with a total rated thermal input exceeding 20 MW, as well as activities in refining, heavy industry, and manufacturing. Power generators in Northern Ireland still fall under the EU ETS, as they are part of the integrated Single Electricity Market with the Republic of Ireland.
In addition to the power sector’s participation in the UK ETS, the UK’s Carbon Price Support (CPS) policy imposes an additional carbon tax of GBP 18 (USD 23.70) per tCO2 for power generators in Great Britain (excluding Northern Ireland) using fossil fuels.
From 2025, the UK ETS includes CO2 venting from the upstream oil and gas sector, covering process emissions from extracted hydrocarbons that are vented or released through and/or unlit flare. No additional free allowances will be provided to impacted facilities.
Hospitals and Small Emitter (HSE) Scheme: Hospitals and small emitters with emissions below 25,000 tCO2e per year and a net-rated thermal input lower than 35 MW can apply for HSE status. This allows them to monitor and report their annual emissions against individual and annual emission reduction targets, rather than surrender allowances for their emissions. This approach is similar to the UK’s opt-out scheme in Phase 3 of the EU ETS.
Ultra-Small Emitter Exemption: For stationary installations emitting fewer than 2,500 tCO2e per year, an ultra-small emitter exemption is in place. These installations are required to monitor emissions and notify the regulator if emissions exceed the threshold.
AVIATION: UK ETS obligations arise from flights within the UK, flights from the UK to a country within the EEA (excluding outermost regions) and to Switzerland, and flights between the UK and Gibraltar. [1] Commercial aircraft operators with fewer than 243 full scope flights in a four-month period for three consecutive four-month periods or total full scope annual emissions of less than 10,000 tCO2 are exempt.
Non-commercial aircraft operators are not subject to UK ETS obligations if their annual full scope emissions fall below 1,000 tCO2. Full scope flights are those departing from or arriving in an aerodrome in the UK, Gibraltar, an EEA state, Switzerland, or outermost regions other than an excluded flight.
The UK is also considering how the ETS should interact with ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). In December 2024, the UK Department for Transport launched a consultation on implementing CORSIA in the UK, in partnership with the UK ETS Authority, which includes options for how CORSIA could interact with the UK ETS on flights in scope of both schemes.
MARITIME: From July 1, 2026, the UK ETS will include domestic maritime emissions from ships of 5,000 gross tonnage or more on voyages between UK ports, including round trips. In addition, all emissions from ships of 5,000 gross tonnage or more while in a UK port will be captured by the scheme, regardless of origin or destination. Covered gases are CO2, CH4, and N2O. Operators must prepare Emissions Monitoring Plans, appoint accredited verifiers, and submit annual emissions reports under an operator-based MRV framework. Government non-commercial vessels (e.g., military and emergency services) will be exempt. The framework will use standardized factors and zero-rate sustainable fuels on a tank-to-wake basis, with scope and thresholds subject to review as international regimes evolve.
In November 2025, the Authority launched a consultation on bringing emissions from international maritime voyages into the UK ETS, proposing to include voyages starting or ending in the UK from 2028, covering 50% of emissions related to such journeys.
WASTE INCINERATION AND ENERGY FROM WASTE: Waste incineration and energy from waste facilities are planned to enter the UK ETS from 2028, following a voluntary MRV-only period from 2026 to 2028. The scope will apply to facilities processing ≥3 tonnes/hour of nonhazardous waste or ≥10 tonnes/day of hazardous waste, including clinical waste incinerators, with high-temperature hazardous waste incinerators exempted. During the MRV period, operators must monitor, report, and verify emissions annually without compliance obligations, enabling the Authority to refine factors and policy design ahead of full inclusion.
[1] Aviation activities included in the UK ETS are outlined in the “Greenhouse Gas Emissions Trading Scheme Order 2020”.
Point source
A total of 1,058 entities in 2024, made up of 688 installations and 370 aircraft operators
Allowance Allocation & Revenue
AUCTIONING: Auctioning is the primary means of allowance allocation in the UK ETS. Auctions currently have a GBP 22[1] (USD 28.97) Auction Reserve Price (ARP), below which allowances will not be sold. Auctions clear even when not all allowances are sold. Unsold allowances are carried over to the next four auctions, up to a limit of 125% of allowances originally intended for sale at those auctions. If all four subsequent auctions reach the 125% limit, the remaining unsold allowances are transferred into the Market Stability Mechanism Account.
In 2025, ~51.5 million allowances were sold at auction, raising ~GBP 2.4 billion (~USD 3.2 billion). As set out in the auction calendar, ~52 million UK Allowances (UKAs) will be auctioned in 2026 across 25 auctions.
FREE ALLOCATION: A number of UKAs are allocated for free to industrial participants at risk of carbon leakage. The number of free allowances that an installation is entitled to is determined using the historical activity level, an industry benchmark, and a carbon leakage exposure factor (CLEF). The benchmarks and Carbon Leakage List (used to determine CLEFs) that have been used for the first allocation period are those used in Phase 4 of the EU ETS in the most part with an exception for the lime benchmark and malt extraction’s carbon leakage status which were temporarily amended from 2024 to 2026. Historical activity levels for the first allocation period’s free allocations are based on data collected under the EU ETS.
There is a maximum number of allowances allocated for free (the “industry cap”). Originally, an absolute value for the industry cap was established for each year of the first phase. This approach was changed following the 2022 consultation on reforming the UK ETS. From 2024, the industry cap is set at 40% of the total cap and reduces annually in line with the cap trajectory. If the total amount of free allocation exceeds the industry cap for a particular year, unallocated UKAs from the industry cap from the previous year, as well as allowances from a flexible reserve, can be used. As a last resort, a cross-sectoral correction factor would be applied to ensure a uniform reduction across eligible participants.
An initial allocation table, which lists the volume of free allowances for each installation for the first allocation period, was published in May 2021. Eligible installations must submit a verified Activity Level Report (see ‘Compliance’ section). If the data in the Activity Level Report shows an increase or decrease in activity of 15% or more from historical activity levels (calculated based on the previous two years’ activity levels), their free allocation will be recalculated.
The Authority completed the Free Allocation Review, launched in 2021 and run in two phases. The final Authority Response, published in November 2025, confirms that the second allocation period will begin in 2027, with 2026 treated as an extension of the first period. This ensures that free allocation reforms take effect alongside the introduction of the UK CBAM.
Key decisions include:
- Operators able to choose to have activity data for either the years 2020 only, or 2020 and 2021 excluded for the purpose of determining historical activity level for the 2027 to 2030 allocation period;
- The retention of current benchmarks for 2027, with the intent to adopt updated EU benchmark values from 2028 to 2030;
- Retaining the current carbon leakage list;
- No introduction of tiering of free allocation for sectors at risk of carbon leakage;
- No early phase out of free allocations for sectors not on the carbon leakage list;
- No additional methodologies to be introduced in 2027, which would introduce conditions on the provision of free allocation; and
- A gradual phase out of free allocations for sectors covered by the UK CBAM beginning in 2027, with an indicative phase out trajectory of nine years.
The Authority also confirmed updated rules for ceased installations.
Free allocation for aircraft operators has been fully phased out from January 1, 2026, as previously announced.
CBAM: The UK CBAM will work alongside the UK ETS to mitigate the risk of carbon leakage from imports. The government confirmed that the mechanism will apply from 2027.
The CBAM will initially cover aluminum, cement, fertilizers, hydrogen, and iron and steel, and will initially account for direct (process) emissions embedded in imported goods. Indirect (electricity-related) emissions will be delayed until 2029 at the earliest.
To ensure consistency between the domestic ETS and the border measure, free allocation for sectors covered by the CBAM will be gradually adjusted from 2027. This adjustment would reflect the introduction of a carbon price on imports, reducing the need for free allocation as a carbon leakage mitigation tool.
The revised Free Allocation framework ensures that CBAM alignment and free allocation phase-in/out schedules are synchronized.
NER: A reserve of free allowances is set aside for installations that become eligible for participation within Phase 1 and for covered installations that significantly increase their activity level. The number of free allowances for new entrants is determined based on their activity in the first year of operation, the industry benchmark, and CLEF.
[1] The ARP will be adjusted for inflation to maintain its real value, a nominal increase from GBP 22 to GBP 28, in 2026.
GBP 19.7 billion (USD 25.9 billion) since the beginning of the program
GBP 2.4 billion (USD 3.2 billion) in 2025
Revenues from UK ETS auctions accrue to the general budget and are not earmarked.
Flexibility & Linking
Banking is allowed, and allowances remain valid in future years of the scheme.
Limited and implicit borrowing is allowed, i.e., the use of UKAs allocated for free in the current year for compliance in the previous year.
The use of offset credits is not allowed.
Engineered Greenhouse Gas Removals (GGRs) are set to integrate into the UK ETS from 2029, with legislation to be finalized by 2028. In the initial phase, credits from eligible domestic projects would replace allowances one-for-one without changing the cap level. Credits will be issued ex-post after verified sequestration and must meet a minimum 200-year permanence requirement. The Authority is considering differentiating removal allowances from regular allowances and it is assessing auction mechanisms to support market access, alongside potential future inclusion of high‑quality nature‑based removals.
The UK ETS is not linked with any other system.
The EU and UK agreed to work towards the linking of their ETSs, as set out in the Common Understanding at the May 19, 2025 EU-UK Summit. The envisaged link would enable mutual recognition of allowances for compliance, allow cross-system trading, and create the conditions for mutual CBAM exemptions.
Carbon tax: UK Carbon Price Support (CPS)
The CPS, introduced in 2013, is an additional GBR 18/tCO2 (USD 23.70/tCO2) tax on emissions from fossil fuel power generation in Great Britain (excluding Northern Ireland), on top of the UK ETS carbon price.
Domestic crediting mechanisms: UK Woodland Carbon Code and Peatland Code
Compliance
One year. Covered entities have until the end of April of the year following the reporting period to surrender allowances. These provisions are the same as under the EU ETS.
FRAMEWORK: The UK ETS has adopted the MRV framework of Phase 4 of the EU ETS, including discretionary changes regarding reduced frequency of improvement reporting and the simplification of monitoring plans. “UK ETS Order 2020” gives effect (with modifications) to the “Monitoring and Reporting Regulation (MRR) 2018” and the “Verification Regulation (VR) 2018”.
MONITORING: The UK ETS requires continuous, year‑round monitoring under approved plans, with year‑end compilation. Maritime MRV starts July 1, 2026, with operator-based EMPs and verification. Waste has a voluntary MRV-only period from 1 January 2026 ahead of 2028 inclusion.
Installations with Hospital and Small Emitter (HSE) status or Ultra-Small Emitter (USE) status are still required to monitor their emissions and notify the regulator if they exceed relevant thresholds.
REPORTING: Annual self-reporting. Annual emissions report (and activity level report where applicable) due March 31 for the prior year. USEs are required to submit verified emissions reports once every five years to apply for the status.
VERIFICATION: Verification by independent accredited verifiers is required before the end of March each year. Verifiers must be accredited by the UK Accreditation Service (UKAS) in accordance with the “Verification Regulation (EU) 2018/2067”, which is based on the ISO/IEC 17029 and ISO 14065 international standards for GHG validation and verification bodies.
Regulated entities must pay an excess emissions penalty for each tCO2e emitted not matched by a surrendered allowance. This penalty is equal to GBP 100 per tCO2e (USD 131.67) (March 2021 value) adjusted for inflation over time. Paying this penalty does not remove the obligation to surrender an allowance. A new deadline for any outstanding deficit can be set via issuance of a ‘deficit notice’, and non-compliance with this will result in a penalty of 1.5x the relevant carbon price, and may lead to escalating daily GBP 1,000 (USD 1,316) penalties if it continues to remain unmet. The names of non-compliant operators are published.
Market Regulation
MARKET PARTICIPATION: Compliance entities, non-compliance entities (domestic and international), and individuals.
MARKET TYPES:
Primary: The majority of allowances are allocated through auctioning. Auctions are held every two weeks, with dates and allowance amounts set out in the auction calendar. Compliance entities, financial institutions, and business groupings and public bodies acting on behalf of compliance entities can participate. Auctions are managed by ICE Futures Europe.
Secondary: UKAs are traded on the ICE Futures Europe exchange. Contracts for daily futures, futures, and options on futures contracts are available. Participants may also trade allowances over the counter. Participants in the secondary market must have an account in the UK Registry. Participants trading on the exchange must meet the requirements of the ICE Futures Exchange.
LEGAL STATUS OF ALLOWANCES: The “Recognized Auction Platforms (Amendment and Miscellaneous Provisions Regulations 2021) Affirmative Statutory Instrument” establishes UKAs as financial instruments.
COST CONTAINMENT MECHANISM (CCM)
Instrument type: Price-based instrument
Functioning: The UK ETS has a CCM to avoid price spikes by auctioning additional allowances. If the CCM is triggered, the Authority can decide on whether and how to intervene. The intervention can include: redistributing allowances between the current year’s auctions; bringing forward UKA supply from future years; drawing from the Market Stability Mechanism Account; auctioning up to 25% of remaining allowances in the NER; or auctioning allowances left unallocated from the industry cap in a given year.
The CCM is triggered if, for six consecutive months, the allowance price is three times the average allowance price in effect in the UK in the two preceding years.
Following public consultation, in December 2025 the UK ETS Authority announced its decision to maintain the existing design and operation of the CCM.
AUCTION RESERVE PRICE (ARP)
Instrument type: Set price
Functioning: The ARP establishes a minimum bid price at auctions. The ARP is currently set at GBP 22 (USD 28.97).
Following public consultation, in December 2025 the UK ETS Authority announced its decision to retain and inflation-proof the ARP to maintain its real value, thus implementing an inflation-based increase since its introduction (i.e., from GBP 22 [USD 28.97] to GBP 28 [USD 36.87]) in 2026 and increase the value yearly by inflation from 2027.
SUPPLY ADJUSTMENT MECHANISM (SAM)
Following public consultation, in December 2025, the UK ETS Authority announced that it would not introduce a SAM for a standalone UK ETS.
Other Information
UK Climate Change Committee (CCC): An independent, statutory body established under the “Climate Change Act 2008”. Its primary role is to advise the UK government and devolved administrations on emissions targets and on the progress in their achievement. The CCC provides expert advice on the design and implementation of the UK ETS, on its effectiveness in reducing emissions and reports on its progress.
UK ETS Authority: Overall responsibility for designing and implementing the UK ETS. It is composed of representatives of the UK government (Department for Energy Security and Net Zero (DESNZ), HM Treasury (HMT) and Department for Transport (DfT)), Scottish government, Welsh government, and the Department of Agriculture, Environment and Rural Affairs of Northern Ireland.
Regulators (Environment Agency; Scottish Environment Protection Agency; Natural Resources Wales; Northern Ireland Environment Agency; Offshore Petroleum Regulator for Environment and Decommissioning): Responsible for enforcing compliance with the UK ETS Regulations. The Environment Agency serves as the registry administrator and is responsible for the management of accounts in the UK Emissions Trading Registry.
Phase 1 includes two mandatory whole-system reviews. The first review was published at the end of 2023, and the second must be published by the end of 2028.
The UK ETS evaluation program supports the mandatory review process. The report for Phase 1 of the UK ETS evaluation was published in December 2023.[1]
Phase 2 of the evaluation, assessing quantitative impacts of the UK ETS, is scheduled to be published in 2026.
[1] The report is available online.