Emissions Trading Scheme Misalignment

#12 —

Environmental Audit Committee

Recommendation: The UK and EU have agreed to consider linking the UK and EU ETS systems, which would exempt UK producers from the EU’s CBAM (and vice versa), simplifying administrative processes for UK-EU trade; as linking can be a lengthy process, …

Gov response: The Government is open to linking the UK ETS internationally in principle and is considering a range of options. No decision on any preferred linking partners has yet been made. Under the Trade and Cooperation …

Under Consideration

#5 —

Environmental Audit Committee

Recommendation: We recommend that the Government commence work immediately on developing a comprehensive UK carbon border approach, in order that this might be implemented during the 2020s. We recommend that this include a CBAM as part of a co-ordinated set of …

Gov response: The Government agrees that we need multilateral solutions. Indeed, we are firmly of the view that the best way to address carbon leakage would be for all countries to move together in pricing and regulating …

Under Consideration

#3 —

Environmental Audit Committee

Recommendation: While net zero policies address the UK’s territorial production emissions, 43% of the UK’s consumption emissions arise from imports. The UK’s principal carbon pricing mechanism, the ETS, applies to domestic production, but no carbon price is currently applied to imports …

Gov response: The Government agrees that we need multilateral solutions. Indeed, we are firmly of the view that the best way to address carbon leakage would be for all countries to move together in pricing and regulating …

Under Consideration

#1 —

Environmental Audit Committee

Recommendation: Effective carbon pricing is crucial to decarbonisation, but cannot be achieved without effective anti-carbon leakage policies in place. The Government’s current approach to addressing the risks of carbon leakage, including free allocation of Emissions Trading Scheme (ETS) allowances, is insufficient …

Gov response: The Government agrees that we need multilateral solutions. Indeed, we are firmly of the view that the best way to address carbon leakage would be for all countries to move together in pricing and regulating …

Under Consideration

#22 — New Drax agreement offers limited impact on emissions and lacks BECCS investment incentives.

Public Accounts Committee

Recommendation: There are other factors which cast doubt on whether the government has reached a good deal. The new support agreement with Drax reduces the level of allowed supply chain emissions for the fuel it burns, from 55.6 grams of CO2 …

Not Addressed

#7 — Current Bus Service Operators Grant disadvantages rural areas and conflicts with decarbonisation goals.

Transport Committee

Recommendation: The current Bus Service Operators Grant structure appears to disadvantage rural and low-demand areas, where lower fuel consumption per kilometre and longer average journey lengths can reduce the level of support received. This funding model does little to reflect the …

Gov response: We agree with the Committee that there should be greater transparency around how bus services are maintained and operated, and the socially necessary local services measure in the Bus Services (No.2) Bill will support this. …

Accepted

#25 — Ensure aviation sector pays fair share and include Sustainable Aviation Fuels in ETS.

Environmental Audit Committee

Recommendation: The Government should ensure that the aviation sector pays its fair share towards mitigating its carbon emissions and the benefits it receives in comparison to other sectors. Aviation should be included in Emissions Trading Schemes and the government should include …

Gov response: The Government is driving cost-effective decarbonisation of the aviation sector through carbon pricing schemes, including the UK ETS and CORSIA. These schemes are aligned with the ‘polluter pays’ principle, whilst giving businesses the flexibility to …

Accepted

#24 — Aviation sector's carbon emissions are not fully paid for, creating artificial cheapness.

Environmental Audit Committee

Recommendation: The aviation sector does not fully pay for its carbon emissions, whether this is through the lack of a direct carbon tax, VAT on its fuel, or the greater benefits it receives through the Emissions Trading Scheme compared to other …

Gov response: The Government is driving cost-effective decarbonisation of the aviation sector through carbon pricing schemes, including the UK ETS and CORSIA. These schemes are aligned with the ‘polluter pays’ principle, whilst giving businesses the flexibility to …

Accepted

#18 — Legislate to formally include international aviation emissions within Carbon Budgets and Net Zero targets

Environmental Audit Committee

Recommendation: We reiterate the recommendation made by the Climate Change Committee, our predecessor Committee and others that the Government makes Parliamentary time available to introduce the necessary legislation to formally include international aviation emissions within Carbon Budgets and its Net Zero …

Gov response: The Government is already acting on the basis that international aviation emissions are formally included in all carbon budgets from 2033 onwards, as the recent Carbon Budget and Growth Delivery Plan confirmed for Carbon Budget …

Accepted

#17 — International aviation emissions not formally legislated within UK Carbon Budgets

Environmental Audit Committee

Recommendation: Whilst the Committee understands the Government position that it includes international aviation emissions within its carbon calculations, the UK is yet to formally legislate to include international aviation emissions within the Carbon Budgets, despite it agreeing to do so previously. …

Gov response: The Government is already acting on the basis that international aviation emissions are formally included in all carbon budgets from 2033 onwards, as the recent Carbon Budget and Growth Delivery Plan confirmed for Carbon Budget …

Accepted

#10 — National Policy Statement for Ports critically enables maritime decarbonisation through planning decisions

Transport Committee

Recommendation: Decarbonising the maritime sector is a complex and long-term challenge that requires coordinated action across government, industry and planning frameworks. While the National Policy Statement for Ports is not the vehicle for setting decarbonisation policy, it plays a critical enabling …

No Published Response

#9 — Revise National Policy Statement for Ports to clarify port freight interface and promote modal shift

Transport Committee

Recommendation: The Government should revise the draft National Policy Statement for Ports to articulate more clearly how ports interface with other freight modes, ensuring that planning authorities actively consider modal shift in their decision-making. This should reflect the strategic role of …

No Published Response

#20 —

Environmental Audit Committee

Recommendation: We recommend that the Government: a) Ensure, through the oversight of both Cabinet Committees on Climate Action, that the UK’s carbon border approach is aligned with existing environmental, trade, development and fiscal policy, through both its design and implementation stages. …

Gov response: The Government agrees with the importance of aligning our approach to carbon leakage with our wider environmental, trade, development, and fiscal policy. We will continue to engage with all the appropriate Cabinet Committees as we …

Under Consideration

#19 —

Environmental Audit Committee

Recommendation: The UK’s carbon border approach needs to be aligned with the Government’s wider environmental policies, and integrated into trade, development and fiscal policy. The context for carbon border measures is not fixed, and CBAM in particular represents a new policy …

Gov response: The Government agrees with the importance of aligning our approach to carbon leakage with our wider environmental, trade, development, and fiscal policy. We will continue to engage with all the appropriate Cabinet Committees as we …

Under Consideration

#17 —

Environmental Audit Committee

Recommendation: Pricing the carbon element, so low-carbon products become less expensive than high-carbon ones, is a powerful lever to reduce consumption emissions, to support the development of low-carbon products and increase access to such products. Currently, high energy prices and rises …

Gov response: As noted above, we have announced our intention to consult on a range of carbon leakage mitigation options, including on a UK CBAM, later this year. This announcement does not commit the Government to any …

Under Consideration

#13 —

Environmental Audit Committee

Recommendation: We recommend that the Government: a) Set out in its response to this report: b) how it intends to work with stakeholders in the EU and UK to understand how the proposed EU CBAM, would affect the UK, including in …

Gov response: As noted above, we have announced our intention to consult on a range of carbon leakage mitigation options, including on a UK CBAM, later this year. This announcement does not commit the Government to any …

Under Consideration

#10 —

Environmental Audit Committee

Recommendation: It is at present unclear how the proposed EU CBAM might impact the UK, particularly Northern Ireland, where electricity generators are currently under the scope of the EU’s ETS. We understand that this is a dynamic discussion which depends on …

Gov response: We are actively engaging with the EU on their CBAM proposals through formal channels, such as our UK Mission to Brussels, and informal channels, as we do on other elements of the international tax and …

Under Consideration

#7 —

Environmental Audit Committee

Recommendation: As the UK continues to negotiate its own trade agreements following exit from the European Union, there is an opportunity to align trade policy with the UK’s role as a leader in climate change action; further analysis is required to …

Gov response: The Government agrees that we need multilateral solutions. Indeed, we are firmly of the view that the best way to address carbon leakage would be for all countries to move together in pricing and regulating …

Under Consideration

#6 —

Environmental Audit Committee

Recommendation: The UK is an open, trading economy, and trade can be a powerful lever to drive environmental outcomes. Careful design, alongside inclusive engagement with trading partners, is needed to ensure that any CBAM and wider carbon border approach are aligned …

Gov response: The Government agrees that we need multilateral solutions. Indeed, we are firmly of the view that the best way to address carbon leakage would be for all countries to move together in pricing and regulating …

Under Consideration

#4 —

Environmental Audit Committee

Recommendation: Alongside CBAM, the UK’s carbon border approach needs to comprise a set of complementary policies, including product standards, to tackle consumption emissions beyond those covered by explicit carbon pricing, and support decarbonisation across the economy. Careful design is needed to …

Gov response: The Government agrees that we need multilateral solutions. Indeed, we are firmly of the view that the best way to address carbon leakage would be for all countries to move together in pricing and regulating …

Under Consideration

#4 —

Public Accounts Committee

Recommendation: We are not convinced that departments are making effective use of the emissions data to drive decision-making. Central government and other public sector bodies need to use emissions data to decide priorities and assess the affordability of plans. While the …

Gov response: The government agrees with the Committee’s recommendation. Recommendation implemented The government has based its plans for decarbonising the public sector on the best available data. As decarbonisation maturity increases across the sector, new data will …

Accepted

#25 — Implement UK ETS changes to remove conventional aviation fuel from free allocations.

Environmental Audit Committee

Recommendation: We recommend that the Government implement its proposed changes to the UK ETS so as to remove conventional aviation fuel from free allocations, and that it consult on a methodology to include SAF in the ETS in a way which …

Gov response: The Government agrees with this recommendation. We are committed to enhancing the effectiveness of the UK ETS for aviation; and we will take forward the commitments in the Developing the UK ETS government response, which …

Accepted

#24 — Free ETS allocations for aviation ending, SAF pricing needs to reflect carbon impact.

Environmental Audit Committee

Recommendation: We welcome the decision of the UK Government and devolved administrations to end the issuing of free ETS allocations to aviation with effect from the 2026–2030 allocation period. We note that the use of SAF in aviation is currently zero-rated …

Gov response: The Government agrees with this recommendation. We are committed to enhancing the effectiveness of the UK ETS for aviation; and we will take forward the commitments in the Developing the UK ETS government response, which …

Accepted

#14 — Link and keep aligned the UK and EU Emissions Trading Schemes to prevent trade barriers.

Business and Trade Committee

Recommendation: To prevent the UK and EU’s respective Carbon Border Adjustment Mechanism schemes from becoming barriers to trade in electricity and carbon- intensive goods, when doing so maximises export potential and reduces consumer costs, the Government should seek to link, and …

Gov response: The Government welcomes the Committee’s recommendation on mitigating the impact of the EU Carbon Border Adjustment Mechanism (CBAM) through linking UK- EU Emissions Trading Schemes (ETSs); £7 billion worth of UK exports are at risk …

Accepted

#28 — Undertake detailed review of airport expansion's impact on climate, environment, and biodiversity targets.

Environmental Audit Committee

Recommendation: The Government must undertake a detailed review on whether significant airport expansion will realistically allow it to deliver on its legally binding climate, environment and biodiversity targets. This should include a detailed examination of the measures that need to be …

Gov response: The Government’s legal commitment to net zero by 2050 is non-negotiable. Airport expansion, including a third runway at Heathrow, has always been factored into carbon budget planning, and the refreshed Carbon Budget and Growth Delivery …

Accepted

#27 — Airport expansion risks climate targets and lacks demonstrated economic benefits outweighing environmental harm.

Environmental Audit Committee

Recommendation: Whilst it may be possible for the Government to deliver airport expansion alongside its climate and environment targets, we are concerned that the proposed environmental impact from airport expansion will make such targets significantly more difficult to achieve and at …

Gov response: The Government’s legal commitment to net zero by 2050 is non-negotiable. Airport expansion, including a third runway at Heathrow, has always been factored into carbon budget planning, and the refreshed Carbon Budget and Growth Delivery …

Not Addressed

#26 — Conduct wider review of aviation taxation to ensure 'polluter pays' principle is upheld.

Environmental Audit Committee

Recommendation: Government should also conduct a wider review of aviation taxation to ensure that the ‘polluter pays’ principle is upheld, and the aviation industry does not receive benefits which are denied to other important industries. The aviation industry will then be …

Gov response: Air Passenger Duty (APD) applies to airlines and is the principal tax on the aviation sector. It is expected to raise £4.7 billion in 2025–26 and it aims to ensure that airlines make a fair …

Accepted

#23 — Set out detailed analysis on aviation impacts and mitigations if airport expansion proceeds.

Environmental Audit Committee

Recommendation: If the Government proceeds with airport expansion it should set out to the Committee in its response to this report, in-depth analysis on: • How it will ensure carbon costs will reach the level the Government expected in the Jet …

Gov response: The Government is committed to the use of carbon pricing, through the UK Emissions Trading Scheme (UK ETS) and Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), to drive cost-effective decarbonisation of the aviation …

Not Addressed

#21 — Government's Jet Zero Strategy insufficient to deliver Net Zero aviation objectives.

Environmental Audit Committee

Recommendation: The Government’s Jet Zero Strategy remains reliant on demand management measures that are as yet insufficient to deliver Net Zero objectives, especially if there is an increase in demand. The strategy relies on a far higher cost to industry to …

Gov response: The Government is committed to the use of carbon pricing, through the UK Emissions Trading Scheme (UK ETS) and Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), to drive cost-effective decarbonisation of the aviation …

Not Addressed

#4 —

Public Accounts Committee

Recommendation: Government does not have a clear way of determining whether its actions to reduce emissions in the UK are transferring emissions to other countries. The net zero target applies to emissions generated within the UK and does not include emissions …

Gov response: 4.1 The government agrees with the Committee’s recommendation. Target implementation date: Winter 2021 4. 2 BEIS is jointly leading a cross-government work programme with HMT on the issue set out in this re commendation (often …

Under Consideration

#18 —

Environmental Audit Committee

Recommendation: We recommend that the Government, at the design stage: a) Include a strategy to engage with the public in the design of the carbon border approach to develop and maintain public support and keep the public informed of the changes …

Gov response: As noted above, we have announced our intention to consult on a range of carbon leakage mitigation options, including on a UK CBAM, later this year. This announcement does not commit the Government to any …

Under Consideration

#16 —

Environmental Audit Committee

Recommendation: We recommend that the Government: a) clearly define its objectives for any carbon border approach at the outset, and ensure the choice of policy options and design consideration at each stage is led by these objectives. These should encompass the …

Gov response: As noted above, we have announced our intention to consult on a range of carbon leakage mitigation options, including on a UK CBAM, later this year. This announcement does not commit the Government to any …

Under Consideration

#14 —

Environmental Audit Committee

Recommendation: As the report of the Treasury’s Net Zero Review notes, there can be no one-size-fits- all mechanism to address carbon leakage risks. The UK’s carbon border approach needs to comprise a set of complementary policies, designed to drive industrial decarbonisation …

Gov response: The Government agrees that we need multilateral solutions. Indeed, we are firmly of the view that the best way to address carbon leakage would be for all countries to move together in pricing and regulating …

Under Consideration

#11 —

Environmental Audit Committee

Recommendation: The Government has committed to ensuring businesses do not face any unreasonable barriers to trade; further detail would be welcome on how it plans to work with stakeholders in the EU and UK to achieve this. Given that electricity generators …

Gov response: We are actively engaging with the EU on their CBAM proposals through formal channels, such as our UK Mission to Brussels, and informal channels, as we do on other elements of the international tax and …

Under Consideration

#8 —

Environmental Audit Committee

Recommendation: Our recommendations to Government on the design of the carbon border approach are as follows: a) to ensure, from the outset, that the carbon border approach is designed to adhere to the principles of common but differentiated responsibilities and respective …

Gov response: Upholding trade openness remains a priority for this Government. As set out above, if implemented, the Government is clear that any policy or suite of policies would need to carefully balance a range of priorities …

Under Consideration

#2 —

Environmental Audit Committee

Recommendation: Multilateral and global approaches to carbon pricing represent the most appropriate way to support global decarbonisation. Since the process to negotiate and agree these is lengthy, they cannot provide the urgent action necessary in the short term. Pursuing a unilateral …

Gov response: The Government agrees that we need multilateral solutions. Indeed, we are firmly of the view that the best way to address carbon leakage would be for all countries to move together in pricing and regulating …

Under Consideration

#9 —

Public Accounts Committee

Recommendation: The current reporting requirements for central government focus on scope 1 and scope 2 emissions; for example the gas used in boilers and electricity used across the government estate.19 The only scope 3 emissions that are captured by current mandatory …

Gov response: 5. PAC recommendation: BEIS and HM Treasury should ensure that the reporting requirements placed on the public sector are aligned with their objective to lead by example in delivering net zero. This should include consideration …

Accepted

#6 —

Public Accounts Committee

Recommendation: In addition to the BEIS dataset that covers the entire public sector, Defra publishes an annual progress report for the Greening Government Commitments (GGCs). Alongside the government’s other environmental measures, this shows the progress made by central government departments and …

Gov response: 1.3 In terms of individual departmental performance, the Greening Government Commitments (GGCs) emissions reduction targets are negotiated with departments and 2 partner organisations, aligning to longer-term decarbonisation trajectories as much as possible. Government departments are …

Accepted

#5 —

Public Accounts Committee

Recommendation: The public sector risks falling behind on the reporting of its emissions but could learn from developing practice in private sector and the devolved administrations. While the UK government has committed to leading by example in efforts to decarbonise, other …

Gov response: The government agrees with the Committee’s recommendation. its direct emissions by 50% by 2032 and by 75% by 2037 against 2017 levels. Other targets and reporting requirements, including the GGCs, are negotiated to align with …

Accepted

#3 —

Public Accounts Committee

Recommendation: Leadership and oversight of emissions measurement and reporting in central government is fragmented and ineffective. At present, there are at least three departments issuing guidance to central government bodies on how to measure and report emissions. However, the guidance is …

Gov response: The government agrees with the Committee’s recommendation. there are direct references between documents, as is the case with the Sustainability Reporting Guidance (SRG) and GGCs. However, the government also notes that there are cases where …

Accepted

#9 —

Transport Committee

Recommendation: The maritime sector is global, and the UK cannot regulate it alone. To reach the Government’s net zero target, we welcome the Government’s commitment to live up to its world-leading maritime status and push for the net zero target at …

Gov response: The Government agrees. We will publish the updated Clean Maritime Plan by the end of 2023. The refresh will build on the achievements set out in the original Clean Maritime Plan and the Transport Decarbonisation …

Accepted

#24 —

Environmental Audit Committee

Recommendation: The Government should also set out how free allocation under the UK Emissions Trading Scheme and the forthcoming UK Carbon Border Adjustment Mechanism will interact during the transition, with a commitment to review their combined effectiveness globally once the UK …

Response Pending

#23 —

Environmental Audit Committee

Recommendation: The carbon budget delivery plan should provide clarity on how key policy mechanisms, including electricity price support, infrastructure delivery, and carbon pricing will operate together during the Seventh Carbon Budget period to support domestic investment and manage carbon leakage. (Recommendation, …

Response Pending

#22 —

Environmental Audit Committee

Recommendation: The Government should set out clearly how its carbon budget policies will prevent the offshoring of emissions and support domestic decarbonisation, particularly in energy-intensive and trade-exposed sectors. (Recommendation, Paragraph 104)

Response Pending

#19 —

Environmental Audit Committee

Recommendation: The Seventh Carbon Budget must deliver genuine emissions reductions, not reductions achieved by exporting emissions overseas. Meeting carbon budgets through offshoring would undermine their environmental purpose 61 and the integrity of the UK’s climate framework, and risks weakening public confidence …

Response Pending

#26 —

Foreign Affairs Committee

Recommendation: We ask the Government to provide clarity at the earliest opportunity about the state of play of its engagement, if any, with the EU to agree an interim arrangement for British exports under the EU’s Carbon Border Adjustment Mechanism, while …

Gov response: The Government was elected on the basis of manifesto commitments to reset relations with our European Partners, while sticking to our red lines – that we will not return to the Customs Union, Single Market, …

Accepted

#25 —

Foreign Affairs Committee

Recommendation: We support the Government’s intention to act on the commitment made by its predecessor within the Trade and Cooperation Agreement to “seriously consider” linking the UK and EU emissions trading systems. An agreement to that effect would be of benefit …

Gov response: Since the Summit, the Government has struck a deal with the EU to rejoin Erasmus+ in 2027 – fulfilling a key commitment made at the UK-EU Summit and opening up world-class opportunities for young people …

Accepted

#24 — UK's reliance on natural gas results in highest energy bill support in Europe

Public Accounts Committee

Recommendation: Analysis from the Office for Budget Responsibility concluded that the size of the government’s financial support for energy bills (relative to Gross Domestic Product) was one of the highest in Europe because of the UK’s reliance on natural gas.69 The …

Gov response: 6.1 The government agrees with the Committee’s recommendation. Recommendation implemented: June 2025 6.2 The Capacity Market (CM) is the department’s primary mechanism to ensure supply meets demand and delivers electricity security. An assessment is made …

Accepted

#21 — UK electricity prices are highest among IEA countries, partly due to environmental levies

Public Accounts Committee

Recommendation: The United Kingdom has the highest price (including taxes and levies) for domestic electricity out of 25 International Energy Agency (IEA) countries reporting in 2023. Similarly, the UK has the highest price (including taxes and levies) for industrial electricity out …

Gov response: 5.1 The government agrees with the Committee’s recommendation. Target implementation date: July 2025 5.2 The UK has a particularly high ratio of residential electricity price to gas price compared to many countries in Europe. The …

Not Addressed

#5 — Set out timetable for rebalancing energy costs and implementing electricity market reform proposals.

Public Accounts Committee

Recommendation: We remain concerned that even after the crisis has subsided, UK electricity bills are the highest of the countries providing comparable data to the International Energy Agency. The UK had the highest electricity price out of 25 countries reporting both …

Gov response: The government agrees with the Committee’s recommendation. National Pricing. The Review of Electricity Market Arrangements (REMA) programme has committed to publish a decision by mid-2025, to align with the Contracts for Difference (CfD) Allocation Round …

Accepted