Confirmed: Domestic Shipping subject to UK ETS

Domestic Shipping will be subject to UK ETS from 1st July 2026 while Waste Sector begins MRV exercise.

This post is Part 1 of a two-part series responding to the UK Government's latest decisions on the UK ETS, find part two, here.

The UK Government has confirmed that the UK Emissions Trading Scheme (UK ETS) will expand to put a price on CO2 emissions from domestic shipping from 2026, while waste incineration operators are invited into a two-year voluntary period of Monitoring, Reporting, and Verification (MRV) before considered inclusion from 2028.

This announcement follows technical consultations launched in May and November 2024 respectively, offering long-awaited timelines to operators. See our overview of all recently conducted consultations here.

This first step provides some clarity and time for operators to familiarise themselves with requirements in the short term and future decisions on full ETS integration in the long term, while we await further details.

The publication released on 21 July 2025 is only an interim response, not a full policy package. Shippers can expect further insight later this year.

The Authority has made clear that additional responses, including decisions on cap adjustments, legal obligations and importantly cost pass-through in will follow “as soon as reasonably practicable.” Operators can make the reasonable assumption that further technical adjustments, particularly the expansion to international shipping will be influenced by negations of linkage with the EU ETS.

Shipping: Coverage, Responsibilities and a July 2026 Compliance start date

For domestic maritime transport, obligations will apply to emissions from UK port-to-port voyages and offshore activities. The government confirmed alignment with EU ETS vessel thresholds, meaning ships over 5,000 gross tonnage are subject to the UK ETS rules and carbon pricing.

The scheme will include CO2 emissions from UK domestic voyages, UK in-port emissions [from ships which are travelling domestically, internationally or both]  and will also include methane and nitrous oxide emissions from both combustion and slippage.

The “Maritime Operator” in respect of a ship is to be its Registered Owner, except where the ISM Company has entered into a legally binding agreement with the Registered Owner to assume the responsibility for compliance with the obligations of the UK ETS.

The first scheme year will run from 1 July 2026 to 31 December 2026. All subsequent scheme years run 1 January to 31 December each year.

The same regulatory provisions that exist for sectors that are already in the UK ETS to also be applied to maritime. This includes the definition of the scheme year, the reporting and surrender deadlines of 31st March and 30th April respectively, and the requirement to apply for the approval of an emissions monitoring plan.

The Government also confirms that no free allocations of UK ETS allowances will be provided to maritime participants.

The response sets out “key details about the expansion to maritime, giving operators ample time to prepare to comply with the scheme and engage in early onboarding with the Environment Agency.”

The shipping industry has a unique set of operational and contractual complexities that present a challenge when managing ETS requirement, which is why CFP Energy publishes carbon briefings exclusively for the shipping sector.

Access our latest insights and pricing data for shipping ETS by entering your details on the form, here.

Waste Sector: A Voluntary Phase with Detailed Technical Scope

The Authority’s interim response to the waste consultation focuses entirely on the design of the MRV-only period.

Starting in 2026, waste incinerators and Energy from Waste (EfW) operators will be invited to report fossil CO₂ emissions voluntarily.

The scope covers advanced thermal treatments, waste-to-fuel production (including Sustainable Aviation Fuel), and non-mechanical recycling processes where combustion or fuel use occurs.

Included

• Facilities processing >3 tonnes/hour of non-hazardous waste (SWIP threshold)
• Facilities processing >10 tonnes/day of hazardous waste (SWIP threshold)
• Clinical waste incinerators (included in MRV-only phase; subject to reassessment before full inclusion)

Excluded (for now):

• High-temperature incinerators treating mainly hazardous waste, to maintain domestic treatment capacity and avoid unintended export risks.

Operators will be able to claim Small Emitter (HSE) or Ultra-Small Emitter (USE) status[GB4]  based on emissions volume rather than thermal input. Those emitting under 25,000 tonnes fossil CO₂ annually may be eligible for simplified requirements, and under 2,500 tonnes may qualify for even lighter treatment. These thresholds are expected to carry over into the full statutory scheme.

UK ETS Cap - What This Means for Policy Planning

While no cap adjustments have been announced yet, the Authority signaled that the inclusion of waste and shipping will eventually require changes to the UK ETS cap. These changes will be informed by data gathered during the MRV phase and by ongoing modelling of emissions trends and decarbonisation pathways. In particular, emissions from fossil-derived waste are expected to be a focus of future design work, alongside the role of producer responsibility schemes and cost recovery mechanisms.

Stakeholders should also note that Northern Ireland's EfW installations will remain under the EU ETS due to the Windsor Framework. However, operators are encouraged to contribute to UK ETS policy development to avoid future policy divergence.

Managing Compliance: Early Action Will Be Rewarded

Our experience working with industrials since the inception of the UK ETS in 2021, shows that operators who act early to understand the UK carbon market and develop a compliance strategy will be best placed to manage rising carbon cost.

CFP Energy specialise in working with ETS operators to help them understand policy, keep up to date with the market, develop a compliance strategy and execute trades effectively.

We offer a full range of carbon trading solutions, including spot and forward allowance transactions, order triggers to take advantage of sudden market movements and innovative structured products to manage price risk and achieve discounts on current carbon prices.

I’m part of an award-winning team who can help you and your business navigate carbon markets with clarity and confidence. Learn more about our market-leading support, here.

Read part two, here.