Shipping added to UK Emissions Trading Scheme

On 1 July 2026, shipping will be added to the UK Emissions Trading Scheme (UK ETS).

The UK ETS is similar in structure to the EU ETS, in so far as shipping is concerned, and creates obligations for registered owners to report emissions and surrender corresponding allowances for certain emissions created during movements in UK territorial waters.

Who is the regulator?

The regulator for the purpose of the UK ETS is based on the location of the registered office or place of residence of the registered owner. In England, the regulator is the Environment Agency which will also cover non-UK registered or domiciled businesses. In Scotland, the regulator is the Scottish Environment Protection Agency. Natural Resources Wales and DAERA will regulate Scottish and Northern Ireland businesses.

What is regulated?

The UK ETS will regulate carbon dioxide, methane and nitrous oxide emissions created on domestic voyages between two UK ports, including round trips to the same port and emissions created in port.

Who is regulated?

The UK ETS regulates Registered Owners (Maritime Operators) or the party who assumes responsibility through a legally binding agreement for a ship’s operation and duties imposed by the ISM Code, for ships of 5,000 gt and above. Offshore vessels of 5,000 gt and above will be regulated from 1 January 2027.

There are a number of excluded ships and voyages, including ships performing government activities (non-commercial), serving Scottish islands and remote peninsulas, fish catching and processing.

What are the main obligations?

Those within scope must register with the Manage Your UK Emissions Trading Scheme (METS) and submit an Emissions Monitoring Plan (EMP) for all vessels under the Maritime Operators’ responsibility (including evidence of a legally binding agreement if an ISM Company is to handle the regulatory obligations).

Registration with METS is available now. The EMP must be submitted within 42 days of first ‘maritime activity’ in the jurisdiction. The EMP will not be verified by an accredited verifier, but the Maritime Operator must also submit a verified Annual Emissions Report by 31 March 2027 (and annually thereafter).

The Maritime Operator must surrender UK Emissions Allowances (UKAs) on 30 April each year which correspond to 100% of applicable emissions created on UK voyages and 50% emissions created on voyages between UK and Northern Ireland.

From 2028, it is planned that the UK ETS will extend to international voyages requiring the Maritime Operator to report 100% emissions for international voyages but to surrender 50% of corresponding UKAs for those voyages.

For 2026/2027 there is a one-off double surrender period.

UKAs are available through ICE Futures Exchange auction or the secondary carbon market. The Maritime Operator will need to register with the UK Emissions Trading Registry to open an operators’ holding account.

If the obligations are breached, there are mandatory fines for non-compliance, presently £100 per tonne of carbon monoxide or equivalent. Additional civil penalties are presently under review.

Overlap with EU ETS

One key area of potential overlap between the UK ETS and EU ETS relates to time in port for voyages which qualify under both schemes. This overlap arises from the methodology of calculating the beginning and end of qualifying voyages.

The UK ETS defines a ‘Voyage’ as the movement of a ship that commences at the last berth at a port of call within UK jurisdiction and ends at the first berth at that port of call or another port of call within UK jurisdiction. This includes movements within a port of call which do not form part of a ‘Voyage’ and a ship being at a berth. Currently, a voyage from a port in UK jurisdiction to a port outside that jurisdiction is not subject to the obligation to surrender UKAs but the time in port will be captured.

The EU ETS calculates voyage emissions from the last berth or STS in the non-EU port or to the first berth/STS operation in the non-EU port which carries an obligation to surrender EUAs.

There is a potential risk of having to surrender UKAs and EUAs for time in a UK port, if it is also the last port on an outbound voyage to which the EU ETS is applicable.

Key differences

The main area of difference between the UK ETS and EU ETS is the potential for making an Emissions Reduction Claim (ERC) under the UK ETS (no similar off-set is available to maritime under the EU ETS).

The ERC mechanism allows operators to reduce UK ETS liability through the purchase of eligible fuels and claim a reduction in relation to that fuel. If the fuel is verified as meeting the applicable criteria, then it will be zero rated and the number of UKAs to be surrendered will be reduced.

Eligible fuels are dealt with by a direction from the national authority to the regulator and are to be purchased in the same year or not more than three months before the year for which the ERC is made and are not to have been used as an off-set for another UK ETS year or other emission reduction scheme.

There is no polluter pays principle in English law or mechanism for recovery unless that mechanism is contractual.

Conclusion

Maritime Operators whose vessels carry out voyages in UK territorial waters will need to familiarise themselves with the UK ETS and register on the METS platform and open an operators’ holding account for UKAs with the UK Emissions Trading Registry.

The process is intended to be completely digital and the interface with the applicable regulator is through the METS platform, including the submission of the annual EMP and verified Annual Emissions Report.

Maritime Operators should review their existing contracts, including bareboat, ship management and charter party arrangements, and include ETS clauses where necessary to clarify responsibilities in terms of administration and costs of compliance.

For any queries or assistance relating to the UK ETS, EU ETS or any other emissions-related query, please contact our Shipping team to discuss how they can support.