From 1 July shipping companies operating in UK waters will be subject to new regulation as the UK Emissions Trading Scheme (ETS) will expand to cover maritime emissions from voyages between two UK ports and within ports (crown dependencies and overseas territories are excluded).
This is part of the UK’s package of emissions reduction, introduced in the closing days of Theresa May’s stint as British Prime Minister. This package comes from the 2008 Climate Change Act, amended to achieve national net-zero by 2050, including key milestones of a 30% reduction by 2030 and an 80% reduction by 2040.
UK ETS is central to the UK’s decarbonisation ambitions, but for maritime operations this is only part of the solution and must include Onshore Power Supply (OPS) and a transition to new fuels, requiring significant investment in ports, new fuels and emissions reduction technology.
The Brexit component
To explain how the UK ETS emerged, we must roll time backwards to 2016, when the UK was a full member of the EU and participant in its various decarbonisation initiatives, which included the EU MRV (Monitoring, Reporting and Verification) and ETS.
Once Brexit became a reality, with the final schism occurring on 31 January 2020, the UK mirrored existing EU laws and initiatives to preserve the status quo of MRV for maritime and ETS (for fixed installations and aviation only), but now operating with separate IT infrastructure.
As time progressed, the EU and UK schemes have evolved and diverged. Maritime came under the EU ETS in 2023, however the UK only began to consider doing something similar the same year, with consultations running in 2024.
Two European ETSs
The UK ETS has similarities and differences when compared to the EU version.
Just like EU ETS, the UK ETS applies when ships of at least 5,000GT at port or sailing between domestic ports, covering their emissions of CO2, CH4 and N2O. However, the EU ETS has a wider scope and applies to journeys that begin or end in the EU, to or from third countries. The UK ETS does not yet include journeys beginning or ending in another territory as part of its scope, but this is mooted for the next phase.
There are other diversions from the EU ETS. For example, under EU ETS emissions information is collected using MRV standards at the ship level, which the UK had maintained post-Brexit.
However, The Department for Energy Security and Net Zero, which manages UK ETS is separate to the Department for Transport which has managed the UK MRV. This bureaucratic niggle means that for UK ETS, UK MRV will be irrelevant (and in fact is to be withdrawn in early April as a result of UK ETS applying to maritime).
UK ETS monitoring will not be done at the ship level, but at the company level using Emissions Monitoring Plans (EMPs) submitted to one of the relevant UK Environment Agencies for approval. These plans will then be used to collect data throughout the scheme year, usually January to December, ahead of verification of the Annual Emissions Reports (AERs).
Verification bodies check that the data collected aligns to the methodology of the EMP and the requirements of the ETS. Data must be submitted and verified by 31 March in the year following data collection.
Possible delays
There had been some doubts about whether the Statutory Instrument (SI) carrying UK ETS law into legislation would come into force in time for 1 July 2026.
Most pressing was that each individual UK parliament, and the House of Lords, had to independently approve the SI for complete agreement. While this has been relatively straight-forward in the House of Commons, Wales and Scotland, there was intense debate in Northern Ireland and the Lords.
If you have followed the Brexit negotiations, you will know that the most complicated aspect involved what to do with the border between Ireland, part of the EU, and Northern Ireland (NI), part of the UK. The difficulty was in reconciling ‘Brexit’ with the Good Friday Agreement.
The answer was Boris Johnson’s ‘Windsor Framework’ which in some respects redrew the map for the border to fall in the Irish sea. Under UK ETS, whilst exemptions were agreed for Scottish ferry routes, no exemptions were considered for the NI community relying on a connection to mainland Great Britain.
This caused consternation, that the SI amendments were not fair to the communities of NI who have no other way of moving goods other than by sea from the mainland and vice versa.
Under the EU ETS, opportunities for exemption are available through to 2030 for a Member State’s outermost regions. Such exemptions are not year available for NI under the UK ETS.
While these debates threatened a delay, the government’s numbers won the day and the instruments passed through both the Northern Ireland Assembly and the House of Lords in March 2026.
The industry view
There is not yet any clear industry guidance to facilitate the implementation of the UK ETS, as has been produced for EU ETS.
The UK Chamber of Shipping has voiced concerns about the UK ETS and urged the UK government to delay implementation, citing a lack of clear technical guidance. The Chamber also noted inequitable policy design, for ‘lifeline’ services, such as those to the Isles of Wight and Scilly, Channel Islands and Isle of Man, as well as services to NI. They argue that all should be exempt because they are critical links upon which island communities depend for connection to the mainland.
The Chamber also proposes delaying any expansion to international voyages until the International Maritime Organization (IMO), the UN body that regulates international shipping, completes negotiations for its proposed Net Zero Framework.
In addition, the industry wanted clarity on mechanisms, and to ringfence revenues raised through the maritime inclusion into UK ETS to go directly into maritime decarbonisation measures. For example the development of new fuels or Onshore Power Supply (OPS) at more UK ports would be welcome – there is currently a single UK OPS berth, on the south coast.
The Chamber says that without ringfencing money raised, then levies will be taxes rather than an enabler of decarbonisation.
LR’s view
LR has engaged throughout the UK’s maritime ETS consultation process and will continue dialogue with the UK government during implementation, and seeks technical clarity on the operation of the scheme.
LR’s overall concern is that any regional measures are fair, equitable, and implementable, without any overlap with other regional or global schemes. In particular, LR continues to champion:
- The importance of global regulation via the IMO: which should take precedence and not be undermined by unilateral regional action.
- Full alignment with the EU ETS. Misalignment would cause distortion, double charging, and operational confusion. Key areas include:
- Enforcement mechanisms, including a ship-level Document of Compliance for UK ETS
- Surrender deadlines for UK allowances to correspond, currently 30 April each year for UK ETS, 5 months earlier than the EU deadline
- Exemption structures for islands, ice‑class and public service routes to ensure a fair and level playing field
- Comprehensive and technically sound guidance: at the time of publication the UK lacks sufficient guidance on IT readiness and regulatory clarity - these should be made available ahead of 1 July 2026
As the launch date for UK ETS maritime approaches, the UK is also seeks to revoke UK MRV, which requires UK ship operators in scope to monitor and report emissions data. The UK government acknowledges that the UK MRV regulations have not fulfilled the intended purpose and that the expansion of the UK ETS to maritime emissions from 1 July 2026 will replace the existing MRV system.
LR welcomes this move to simplify the UK regulatory framework for maritime emission reporting and anticipates that the UK government will revoke the UK MRV system on or before 23 June 2026.
Join us at the Lloyd’s Register Building in London on 23 April for a session focused on the UK Emissions Trading Scheme (UK ETS) and FuelEU Maritime.
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