Skip to main contentThe UK Emissions Trading Scheme (UK ETS) is the government’s carbon pricing mechanism for energy-intensive industries. By placing a cost on carbon emissions, the scheme is designed to drive decarbonisation while supporting the UK’s net zero ambitions.
From 2026, a number of important changes will come into effect. These mark a transition between the first allocation period (2021–2025) and the second allocation period, which will now begin in 2027. Businesses within scope of the UK ETS should use 2026 to prepare, as actions taken during this year will directly affect future free allocation and compliance costs.
2026 Transitional Year for the UK ETS
The second UK ETS allocation period for stationary installations has been delayed by one year, moving from 2026 to 2027. This change is intended to align the UK ETS more closely with the introduction of the UK Carbon Border Adjustment Mechanism (CBAM).
While 2026 is not a full allocation period, it is a critical year for data submission and eligibility assessments that will determine free allocation levels for 2027–2030.
Free Allocation for Installation Operators
Free allocation under the UK ETS is designed to support sectors at risk of carbon leakage. The benchmarks used to calculate these allocations are based on industry benchmarks originally published by the European Commission in March 2021.
For the upcoming 2027–2030 allocation period, the free allocation application process is split into two stages:
Stage one: Baseline Data Collection, completed between April and June 2025
Stage two: A further baseline data submission, required between 1st April and 30th June 2026
Guidance will be issued by the government ahead of the second application window, but operators should already be planning for this requirement.
Key Changes Taking Effect in 2026
From 2026, operators should be aware of the following developments:
- Second baseline data report required – Installation operators seeking free allocation for 2027–2030 must submit a second baseline data report between 1 April and 30 June 2026.
- Interaction with UK CBAM – This second submission will assess whether products fall within the scope of the UK Carbon Border Adjustment Mechanism, which may affect free allocation eligibility.
- Exclusion of COVID-impacted years – Operators may exclude 2020, or both 2020 and 2021, from baseline data where appropriate. This allows for a fairer historic comparison where production was significantly disrupted.
- Hospital and Small Emitters targets confirmed – Targets for Hospital and Small Emitter participants covering the 2026–2030 period were published in October 2025, providing greater clarity for compliance planning.
What This Means for Your Business
Decisions made in 2026 will directly influence your free allocation position from 2027 onwards. Inaccurate data, missed deadlines, or misunderstandings around CBAM coverage could lead to reduced free allocation and higher compliance costs. Early preparation is essential.
How Envantage Can Help
We support UK ETS participants with baseline data preparation, free allocation strategy, CBAM readiness, and compliance planning. If you are unsure how the 2026 changes apply to your installation or want to ensure your submissions are robust and future-proofed, now is the time to act.
Speak to our energy and carbon experts to understand what the 2026 UK ETS changes mean for your business and how to prepare with confidence.
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