2026 No. 278

CLIMATE CHANGE

The Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026

Made10th March 2026

Coming into force in accordance with article 2

At the Court at Buckingham Palace, the 10th day of March 2026Present,The King's Most Excellent Majesty in Council

This Order is made in exercise of the powers conferred by sections 44, 54 and 90(3) of, and Schedule 2 and paragraph 9 of Schedule 3 to, the Climate Change Act 2008¹.

In accordance with paragraph 10 of Schedule 3 to that Act, before the recommendation to His Majesty in Council to make this Order was made—

the advice of the Committee on Climate Change was obtained and taken into account; and
such persons likely to be affected by the Order as the Secretary of State, the Scottish Ministers, the Welsh Ministers and the Department of Agriculture, Environment and Rural Affairs considered appropriate were consulted.

In accordance with paragraph 11 of that Schedule, a draft of the instrument containing this Order was laid before Parliament, the Northern Ireland Assembly, the Scottish Parliament and Senedd Cymru and approved by resolution of each House of Parliament, the Northern Ireland Assembly, the Scottish Parliament and Senedd Cymru.

Accordingly, His Majesty, by and with the advice of His Privy Council makes the following Order.

Part 1 Preliminary¶

1 Citation¶

This Order may be cited as the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026.

2 Commencement¶

This Order comes into force on the day after the day on which it is made.

3 Extent¶

This Order extends to England and Wales, Scotland and Northern Ireland.

Part 2 Greenhouse Gas Emissions Trading Scheme Order 2020 amended¶

4 Greenhouse Gas Emissions Trading Scheme Order 2020 amended¶

The Greenhouse Gas Emissions Trading Scheme Order 2020² is amended in accordance with this Part.

5 Article 23A amended (flexible reserve)¶

Amends Greenhouse Gas Emissions Trading Scheme Order 2020 · 1 insertion

23A Flexible reserve

paragraphs (1) – (3)(b) unchanged

c E is recalculated as soon as reasonably practicable after the UK ETS authority has approved the recalculation under Article 16b(6) of the Free Allocation Regulation of the final number of allowances to be allocated for a scheme year in the 2027-2030 allocation period, and the flexible reserve is updated on the basis of this recalculated E.

remainder of article unchanged

1 Article 23A is amended as follows.

2 After paragraph (3)(b) insert—

6 Article 34A amended (allocation tables for the 2021-2025 and 2027-2030 allocation periods)¶

Amends Greenhouse Gas Emissions Trading Scheme Order 2020 · 2 changes, 1 insertion

34A Allocation tables for the 2021-2025 and 2027-2030 allocation periods

1 The UK ETS authority must compile a table (an “allocation table”) for the 2021-2025 allocation period and the 2027-2030 allocation period as soon as reasonably practicable after approval under Article 16b of the Free Allocation Regulation of the final annual number of allowances to be allocated in respect of installations—

paragraph (a) unchanged

b in the case of the allocation table for the 2027-2030 allocation period, in respect of which an application for free allocation in the 2027-2030 allocation period is made under Article 4 of that Regulation subject to paragraph (1A).

1A Where Article 16(1a) of the Free Allocation Regulation applies the UK ETS authority must—

a as soon as reasonably practicable after approval under Article 16b of the Free Allocation Regulation of the final annual number of allowances to be allocated in 2027, compile an allocation table for the 2027-2030 allocation period which contains entries for the 2027 scheme year only; and

b as soon as reasonably practicable after approval under Article 16b of the Free Allocation Regulation of the final annual number of allowances to be allocated in the 2028, 2029 and 2030 scheme years, update the allocation table for the 2027-2030 allocation period to include entries for the 2028, 2029 and 2030 scheme years.

paragraphs (2) – (7) unchanged

8 An allocation table must contain—

paragraph (a) unchanged

b subject to paragraph (1A), for each scheme year of the allocation period, the final annual number of allowances to be allocated in respect of each installation;

remaining paragraphs unchanged

1 Article 34A is amended as follows.

2 In paragraph (1)(b) after “of that Regulation” insert “subject to paragraph (1A)”.

3 After paragraph (1) insert—

4 In paragraph (8)(b), at the beginning, for “for” substitute “subject to paragraph (1A), for”.

7 Article 34C amended (allocation tables: updates)¶

Amends Greenhouse Gas Emissions Trading Scheme Order 2020 · 1 insertion

34C Allocation tables: updates

paragraphs (1)(a) – (1)(k) unchanged

l where Article 16(15) of the Free Allocation Regulation applies (including as applied by Article 16(17)), Article 16b of that Regulation (incumbent installations).

remainder of article unchanged

1 Article 34C is amended as follows.

2 After paragraph (1)(k) insert—

8 Article 34D amended (allocation tables: publication, etc.)¶

Amends Greenhouse Gas Emissions Trading Scheme Order 2020 · 1 change, 1 insertion

34D Allocation tables: publication, etc.

paragraphs (1) – (2A) unchanged

3 ~~The~~Subject to paragraph (3A), the UK ETS authority must publish the allocation table for the 2027-2030 allocation period as soon as reasonably practicable after it is compiled and in any event before 1st January 2027.

3A Where article 34A(1A) applies, the UK ETS authority must publish—

a the allocation table referred to in article 34A(1A)(a) as soon as reasonably practicable after it is compiled and in any event before 1st January 2027; and

b the updated allocation table referred to in article 34A(1A)(b) as soon as reasonably practicable after it is compiled and in any event before 1st January 2028.

remaining paragraphs unchanged

1 Article 34D is amended as follows.

2 In paragraph (3), at the beginning, for “The” substitute “Subject to paragraph (3A), the”.

3 After paragraph (3) insert—

9 Article 34S amended (return of allowances: installations)¶

Amends Greenhouse Gas Emissions Trading Scheme Order 2020 · 1 change

34S Return of allowances: installations

1 This article applies where—

paragraph (a) unchanged

b the final annual number of allowances set out in the allocation table to be allocated in respect of the installation for the scheme year is subsequently reduced in consequence of an update to the allocation table to take account of any approval of the UK ETS authority under a provision referred to in ~~article 34C(1)(b) to (f) or (j)~~article 34C(1)(a) to (f), (j) or (l).

remaining paragraphs unchanged

1 Article 34S is amended as follows.

2 In paragraph (1)(b) for “article 34C(1)(b) to (f) or (j)” substitute “article 34C(1)(a) to (f), (j) or (l)”.

10 Schedule 6 amended (permits)¶

Amends Greenhouse Gas Emissions Trading Scheme Order 2020 · 1 insertion

6 (Schedule 6) Permits

sub-paragraph (1)(a) – (b) unchanged

c must apply to the regulator to vary the installation's permit in consequence of the requirement in Article 9(2a) of the Free Allocation Regulation to modify the monitoring methodology plan.

remaining sub-paragraphs unchanged

1 Schedule 6 is amended as follows.

2 After paragraph 6(1)(b) insert—

11 Schedule 8A amended (free allocation for former hospital or small emitters and ultra-small emitters)¶

Amends Greenhouse Gas Emissions Trading Scheme Order 2020 · 1 change, 6 insertions

4 (Schedule 8A) Free allocation for former hospital or small emitters and ultra-small emitters

sub-paragraph (1) unchanged

2 For each eligible scheme year—

a the regulator must determine the number of allowances to be allocated to a former hospital or small emitter or an ultra-small emitter for that eligible scheme year, subject to paragraph 4(9) and (10);

remaining points unchanged

sub-paragraphs (3) – (8) unchanged

9 Where the benchmarks for the 2028, 2029 and 2030 scheme years have not been adopted under Article 16(13)(b)(ii) or 18(9)(b)(ii) of the Free Allocation Regulation on or before 30 September 2026 [… transitional rules for 2027-2030 allocations and ALC adjustments].

10 [Recalculation triggers when factor changes under Article 16(14) of the Free Allocation Regulation, or PRODCOM/benchmark added to Annex 9.]

11 [ALC adjustment in the relevant period for UK CBAM sub-installations.]

12 [Definition of “relevant period” for paragraphs (10) and (11).]

13 [Override of “relevant period” when paragraph (9) applies and 2027 is the affected scheme year.]

14 In paragraph 4(9)(b) and (11) an “ALC adjustment” means an adjustment to free allocation under the Activity Level Changes Regulation approved by the UK ETS authority under Article 6a of that Regulation.

1 Schedule 8A is amended as follows.

2 In paragraph 4(2)(a) after “eligible scheme year” insert “, subject to paragraph 4(9) and (10)”.

3 After paragraph 4(8) insert—

9 Where the benchmarks for the 2028, 2029 and 2030 scheme years have not been adopted under Article 16(13)(b)(ii) or 18(9)(b)(ii) of the Free Allocation Regulation on or before 30 September 2026—

a the calculation referred to in paragraph 4(2)(a) of the final annual number of allowances to be allocated for any of the 2028, 2029 and 2030 scheme years must be undertaken by the regulator on or after 1st October 2027; and

b where the UK ETS authority approved the final number of allowances to be allocated in respect of the installation for the 2027 scheme year and an ALC adjustment applies to a sub-installation of the installation for the 2027 scheme year, the regulator must—

i make an equivalent adjustment to the final number of allowances to be allocated in respect of that sub-installation for the 2028, 2029 and 2030 scheme years; and

ii reflect this adjustment in the final number of allowances to be allocated in respect of the installation which the sub-installation forms part of.

10 Where—

a the regulator has calculated the final annual number of allowances to be allocated in respect of the installation and each sub-installation for any scheme year in the 2027-2030 allocation period under paragraph 4(2)(a);

b the installation has at least one UK CBAM sub-installation within the meaning of Article 2(27) of the Free Allocation Regulation; and

c either—

i a different factor is provided for under Article 16(14) of the Free Allocation Regulation; or

ii the product benchmark or PRODCOM code of the product produced in a sub-installation that is not a UK CBAM sub-installation for the 2027-2030 allocation period is subsequently added to the relevant table in Annex 9 to the Free Allocation Regulation;

the regulator must recalculate the final number of allowances to be allocated in the relevant period in respect of that installation in accordance with paragraph 4(3) or (4), and (5).

11 Where paragraph 4(10) applies and an ALC adjustment applies to the UK CBAM sub-installation for the scheme year immediately preceding the relevant period, the regulator must—

a make an equivalent adjustment to the final number of allowances to be allocated in the relevant period for the UK CBAM sub-installation; and

b reflect this adjustment in the final annual number of allowances to be allocated in the relevant period in respect of the installation which that UK CBAM sub-installation forms part of.

12 Subject to paragraph 4(13), in paragraph 4(10) and (11), “relevant period” means—

a in the case of paragraph (10)(c)(i)—

i the period beginning with the scheme year for which the factor has changed under Article 16(14) of the Free Allocation Regulation and ending with the 2030 scheme year; or

ii where the scheme year for which the factor has changed is 2030, the 2030 scheme year;

b in the case of paragraph (10)(c)(ii)—

i the period beginning with the scheme year after the scheme year in which the product benchmark or PRODCOM code was added to the relevant table in Annex 9 to the Free Allocation Regulation and ending with the 2030 scheme year; or

ii where the scheme year after the scheme year in which the product benchmark or PRODCOM code was added to the relevant table is 2030, the 2030 scheme year.

13 Where paragraph 4(9) applies and either of the following circumstances apply “relevant period” means the 2027 scheme year—

a the scheme year for which the factor has changed under Article 16(14) of the Free Allocation Regulation is 2027; or

b the scheme year after the scheme year in which the product benchmark or PRODCOM code was added to the relevant table in Annex 9 to the Free Allocation Regulation is 2027.

Part 3 Free Allocation Regulation amended¶

12 Free Allocation Regulation amended¶

Commission Delegated Regulation (EU) 2019/331 is amended in accordance with this Part.

13 Article 2 amended (definitions)¶

Amends Free Allocation Regulation (EU) 2019/331 · 1 change, 1 insertion

2 Definitions

paragraph 1 points (1) – (26) unchanged

27 “UK CBAM sub-installation” means a sub-installation identified as a result of the requirement in Article 10(4a) which has a process that serves the production of a UK CBAM good.

paragraphs 2 – 3 unchanged

4 ~~[former definition substituted]~~References in this Regulation to benchmarks for an allocation period or scheme year are to be construed in accordance with Articles 16(13) and 18(9); but if no benchmarks for the 2028, 2029 and 2030 scheme years are adopted by way of an order under Part 3 of the Climate Change Act 2008 before the regulator is required to calculate the preliminary annual number of allowances to be allocated for the 2028, 2029 and 2030 scheme years, the benchmarks for the 2027 scheme year are to be used for the calculation.

1 Article 2 is amended as follows.

2 In paragraph 1 after point (26) insert—

3 For paragraph 4 substitute—

14 Article 4 amended (application for free allocation in 2027-2030 allocation period by operators of incumbent installations)¶

Amends Free Allocation Regulation (EU) 2019/331 · 1 change, 5 insertions

4 Application for free allocation in 2027-2030 allocation period by operators of incumbent installations

paragraphs 1 – 1a(a) unchanged

b ~~[former second-stage requirements substituted]~~the second stage is that in the period beginning with 1 April 2026 and ending with 30 June 2026, the operator must (i) notify the regulator that the operator wishes the application to proceed; (ii) notify the regulator which sub-installations are UK CBAM sub-installations; and (iii) where requested, resubmit the documents referred to in paragraph 2.

1c As part of the second stage under paragraph 1a(b), where the operator has any relevant product/heat/fuel benchmark or process emissions sub-installation, the operator must resubmit the documents referred to in paragraph 2(a) and 2(c) reflecting the division required by Article 10(4a). Submission satisfies paragraph 1a(b)(ii).

1d The operator may notify the regulator that 2020 (or 2020 and 2021) baseline data is to be excluded from the calculation under Article 15 of historical activity levels.

1e The regulator must request corrections of any non-conformities or errors made during the second stage under paragraph 1a(b).

paragraphs 2 – 6 unchanged

7 […] in ~~paragraph 1a(b)(ii)~~paragraph 1a(b)(iii) or 1c […].

7a Where, as part of the second stage under paragraph 1a(b), the operator makes a notification under paragraph 1d, Articles 15 and 15a(2)–(3) apply again with stated modifications (including reading “30 September 2025” as “30 September 2026”).

paragraph 8 unchanged

9 In this Article the “relevant product/heat/fuel benchmark sub-installation” and “relevant process emissions sub-installation” definitions are inserted, identifying sub-installations that have been split as a result of Article 10(4a).

1 Article 4 is amended as follows.

2 For paragraph 1a(b) substitute—

3 After paragraph 1b insert—

1c As part of the second stage under paragraph 1a(b), where the operator has any relevant product benchmark sub-installation, any relevant heat benchmark sub-installation, any relevant fuel benchmark sub-installation or any relevant process emissions sub-installation, the operator must during the second stage resubmit the documents referred to in paragraph 2(a) and 2(c) reflecting the division required by Article 10(4a). Submission of these documents satisfies the requirement in paragraph 1a(b)(ii).

1d As part of the second stage under paragraph 1a(b), the operator may notify the regulator that the data submitted in their baseline data report for a sub-installation or installation covering the 2020 scheme year, or both the 2020 and 2021 scheme years, is to be excluded from the calculation under Article 15 of historical activity levels for that sub-installation or installation.

1e The regulator must request corrections by the operator of any non-conformities or any errors made by the operator during the second stage under paragraph 1a(b) which impact on the determination of the historical activity levels or the calculation of free allocation.

4 In paragraph 7 for “paragraph 1a(b)(ii)” substitute “paragraph 1a(b)(iii) or 1c”.

5 After paragraph 7 insert—

7a Where, as part of the second stage under paragraph 1a(b), the operator makes a notification under paragraph 1d:

a Article 15 applies again in relation to the application, but any reference to baseline period must be read as excluding the 2020 scheme year or the 2020 and 2021 scheme years;

b Article 15a(2) and (3) apply again in relation to the application, with the following modifications:

i any reference to historical activity levels must be read as a reference to any historical activity levels redetermined under Article 15 as so applied;

ii Article 15a(2)(b) applies as if for “30 September 2025” there were substituted “30 September 2026”;

c for the purpose of paragraph 6(b), Article 15a(4) and (5) apply in relation to the application taking account of the historical activity levels redetermined under Article 15 as so applied.

6 After paragraph 8 insert—

9 In this Article:

a an operator has a “relevant product benchmark sub-installation” where:

i the operator’s stage one baseline data report included a product benchmark sub-installation; and

ii as a result of the requirement in Article 10(4a), the inputs, outputs and emissions that were assigned to that product benchmark sub-installation at stage one have subsequently been assigned to two or more product benchmark sub-installations;

b an operator has a “relevant heat benchmark sub-installation” where:

i the operator’s stage one baseline data report included a heat benchmark sub-installation; and

ii as a result of the requirement in Article 10(4a), the inputs, outputs and emissions that were assigned to that heat benchmark sub-installation at stage one have subsequently been assigned to two or more heat benchmark sub-installations;

c an operator has a “relevant fuel benchmark sub-installation” where:

i the operator’s stage one baseline data report included a fuel benchmark sub-installation; and

ii as a result of the requirement in Article 10(4a), the inputs, outputs and emissions that were assigned to that fuel benchmark sub-installation at stage one have subsequently been assigned to two or more fuel benchmark sub-installations;

d an operator has a “relevant process emissions sub-installation” where:

i the operator’s stage one baseline data report included a process emissions sub-installation; and

ii as a result of the requirement in Article 10(4a), the inputs, outputs and emissions that were assigned to that process emissions sub-installation at stage one have subsequently been assigned to two or more process emissions sub-installations.

15 Article 6 amended (general obligation to monitor)¶

Amends Free Allocation Regulation (EU) 2019/331 · 1 deletion

6 General obligation to monitor

surrounding text unchanged

— The words ~~“to be submitted”~~ are omitted.

1 Article 6 is amended as follows.

2 Omit “to be submitted”.

16 Article 9 amended (changes to the monitoring methodology plan)¶

Amends Free Allocation Regulation (EU) 2019/331 · 2 changes, 2 insertions

9 Changes to the monitoring methodology plan

paragraphs 1 – 2 unchanged

2a Where the operator has any relevant benchmark or process emissions sub-installation within the meaning of Article 4(9), the operator must modify the monitoring methodology plan to reflect the boundaries of the sub-installation that apply as a result of the requirement in Article 10(4a).

paragraphs 3 – 5 unchanged

5a Paragraphs 3, 4 and 5 do not apply to a modification made pursuant to paragraph 2a. Instead: (a) the operator must notify the regulator on or before 30 September 2026; (b) the modification is subject to approval by the regulator; (c) once approved, it takes effect on 1 January 2027.

6 […] (d) after ~~“paragraph 3”~~“paragraph 3 or 5a” and after ~~“paragraph 4”~~“paragraph 4 or the date of the approval referred to in paragraph 5a(b)” […].

1 Article 9 is amended as follows.

2 After paragraph 2 insert—

3 After paragraph 5 insert—

4 In paragraph 6(d)—

a after “paragraph 3” insert “or 5a”;

b after “paragraph 4” insert “or the date of the approval referred to in paragraph 5a(b)”.

17 Article 10 amended (division into sub-installations)¶

Amends Free Allocation Regulation (EU) 2019/331 · 2 insertions

10 Division into sub-installations

paragraphs 1 – 4 unchanged

4a For product, heat, fuel and process emissions sub-installations, the operator must, after the relevant steps in paragraphs 3 and 4, distinguish on the basis of the benchmarks and PRODCOM codes listed in Annex 9 whether the relevant process serves the production of a UK CBAM good. Where at least 95 % of the activity level serves (or does not serve) UK CBAM production, the operator is exempted from providing distinguishing data. A 95 % heat-benchmark concentration rule also applies.

4b Paragraph 4a applies to the data monitoring and reporting required by this Regulation and the Activity Level Changes Regulation in circumstances where an operator applies for or receives free allocation in the 2027-2030 allocation period.

1 Article 10 is amended as follows.

2 After paragraph 4 insert—

4a For product benchmark sub-installations, heat benchmark sub-installations, fuel benchmark sub-installations and process emissions sub-installations, the operator must, after following the relevant steps in paragraphs 3 and 4, clearly distinguish on the basis of the product benchmarks and PRODCOM codes listed in Annex 9 whether or not the relevant process serves the production of a UK CBAM good. The operator must provide evidence to the satisfaction of the regulator that the relevant process serves or does not serve the production of a UK CBAM good. Where at least 95 % of the activity level of the product benchmark sub-installations, of the heat benchmark sub-installations, of the fuel benchmark sub-installations or of the process emissions sub-installations, serve the production of a UK CBAM good or where at least 95 % of the activity level of the product benchmark sub-installations, of the heat benchmark sub-installations, of the fuel benchmark sub-installations or of the process emissions sub-installations do not serve the production of a UK CBAM good, the operator is exempted from providing data allowing for the distinction in terms of UK CBAM status. Where at least 95 % of the activity level of the heat benchmark sub-installations are attributable to one of these sub-installations, the operator may attribute the total activity level of these sub-installations to the one with the highest activity level.

4b Paragraph 4a applies in respect of the data monitoring and reporting required by this Regulation and the Activity Level Changes Regulation in circumstances where an operator applies for or receives free allocation in the 2027-2030 allocation period.

18 Article 15a amended (assessment of applications for free allocation by operators of incumbent installations)¶

Amends Free Allocation Regulation (EU) 2019/331 · 1 change

15a Assessment of applications for free allocation by operators of incumbent installations

1 […] (b) […] in accordance with ~~“paragraphs 6 and 7”~~“paragraphs 6, 7 and 7a” […].

remainder of article unchanged

1 Article 15a is amended as follows.

2 In paragraph 1(b) for “paragraphs 6 and 7” substitute “paragraphs 6, 7 and 7a”.

19 Article 16 amended (preliminary allocation at installation level for incumbent installations)¶

Amends Free Allocation Regulation (EU) 2019/331 · 6 changes, 6 insertions

16 Preliminary allocation at installation level for incumbent installations

1 […] (b) […] the regulator must, subject to paragraph 1a, […].

1a Where the benchmarks for the 2028, 2029 and 2030 scheme years have not been adopted under paragraph 13(b)(ii) on or before 30 September 2026, the regulator must (a) calculate the preliminary annual number of allowances for the 2027 scheme year; and (b) no earlier than 1 October 2027, calculate them for the 2028, 2029 and 2030 scheme years.

2 […] points (a) to (d): after ~~“for the relevant”~~ insert “scheme year or”; omit ~~“set out in Annex 8”~~ in each place.

2a The factors determined in paragraph 14 must be applied to the preliminary annual number of allowances determined under paragraph 2 for UK CBAM sub-installations.

2b Where the sub-installation is not a UK CBAM sub-installation, a factor of 1 must be applied.

3 […] for ~~“pursuant to paragraph 2 of this Article”~~ substitute “following the calculation at paragraph 2a or 2b”.

4 After ~~“the factor to be applied”~~ insert “to the preliminary annual number … following the calculation at paragraph 2a or 2b”.

5 […] after ~~“for the relevant period”~~ insert “scheme year or”; omit ~~“set out in Annex 8”~~.

paragraphs 6 – 12 unchanged

13 In paragraphs 2 and 5 references to product/heat/fuel benchmarks are to: (a) for 2026 incumbents (within article 5 of S.I. 2025/124), the Annex 8 benchmarks; (b) for incumbents in 2027-2030: the 2027 benchmarks are those in Annex 8; the 2028–2030 benchmarks are those adopted by order under Part 3 of the Climate Change Act 2008.

14 UK CBAM reduction factors for the 2027-2030 allocation period: 2027 – 0.975; 2028 – 0.95; 2029 – 0.9; 2030 – 0.775 (each subject to override by an order under Part 3 of the Climate Change Act 2008 before the preceding 31 December).

15 Where a different factor is subsequently provided for under paragraph 14, the regulator must recalculate the preliminary annual number of allowances for each UK CBAM sub-installation in the relevant period.

16 Definition of “relevant period” in paragraph 15.

17 Recalculation rule when a PRODCOM code is added to Annex 9.

18 The regulator must use the factor under paragraph 14 in force at the time of the (re)calculation.

1 Article 16 is amended as follows.

2 In paragraph 1(b) after “the regulator must” insert “, subject to paragraph 1a,”.

3 After paragraph 1 insert—

4 In points (a) to (d) of paragraph 2—

a after “for the relevant” insert “scheme year or” in each place that those words appear;

b omit “set out in Annex 8” in each place that those words appear.

5 After paragraph 2 insert—

6 In paragraph 3 for “pursuant to paragraph 2 of this Article” substitute “following the calculation at paragraph 2a or 2b”.

7 In paragraph 4 after “the factor to be applied” insert “to the preliminary annual number of emission allowances allocated free of charge determined for each sub-installation following the calculation at paragraph 2a or 2b”.

8 In the first sentence of paragraph 5—

a after “for the relevant period” insert “scheme year or”;

b omit “set out in Annex 8”.

9 After paragraph 12 insert—

13 In paragraphs 2 and 5, references to a product benchmark, heat benchmark or fuel benchmark are to:

a for 2026 incumbents within the meaning of article 5 of the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025⁴, in respect of the calculation of the preliminary annual number of allowances for the 2026 scheme year, the benchmarks set out in Annex 8;

b for incumbent installations applying for free allocation in the 2027-2030 allocation period:

i in respect of the calculation of the preliminary annual number of allowances for the 2027 scheme year, the benchmarks set out in Annex 8; and

ii in respect of the calculation of the preliminary annual number of allowances for the 2028, 2029 and 2030 scheme years, the benchmarks adopted by way of an order under Part 3 of the Climate Change Act 2008⁵.

14 The factor to be applied in the 2027-2030 allocation period is:

a for scheme year 2027, unless otherwise provided for on or before 31 December 2026 by way of an order under Part 3 of the Climate Change Act 2008, 0.975;

b for scheme year 2028, unless otherwise provided for on or before 31 December 2027 by way of an order under Part 3 of the Climate Change Act 2008, 0.95;

c for scheme year 2029, unless otherwise provided for on or before 31 December 2028 by way of an order under Part 3 of the Climate Change Act 2008, 0.9;

d for scheme year 2030, unless otherwise provided for on or before 31 December 2029 by way of an order under Part 3 of the Climate Change Act 2008, 0.775.

15 Where the regulator has calculated the preliminary annual number of emissions allowances to be allocated free of charge for each UK CBAM sub-installation and a different factor is subsequently provided for under paragraph 14, the regulator must as soon as reasonably practicable after a different factor for a scheme year is provided for:

a recalculate the preliminary annual number of emissions allowances allocated free of charge for each UK CBAM sub-installation in respect of the relevant period in accordance with paragraphs 2 to 9;

b send the recalculated preliminary annual number of allowances calculated in respect of each installation and each sub-installation of each installation to the UK ETS authority; and

c make any corrections to the calculation required by the UK ETS authority.

16 In paragraph 15 the “relevant period” begins with the scheme year for which the factor has changed under paragraph 14 and ends with the 2030 scheme year; but:

a where paragraph 1a applies and the scheme year for which the factor has changed is 2027, the relevant period refers to the 2027 scheme year; or

b where the scheme year for which the factor has changed is 2030, the relevant period refers to the 2030 scheme year.

17 Where the product benchmark or the PRODCOM code of the product produced in a sub-installation that is not a UK CBAM sub-installation for the 2027-2030 allocation period is subsequently added to the relevant table in Annex 9, the regulator must carry out a recalculation in respect of the sub-installation as if paragraph 15 applies, except that:

a the regulator must carry out the functions listed in paragraph 15 as soon as reasonably practicable after the product benchmark or PRODCOM code is added to the relevant table;

b the relevant period is to be read as beginning with the scheme year after the scheme year in which the product benchmark or PRODCOM code was added to the relevant table in Annex 9 and ending with the 2030 scheme year; but:

i where paragraph 1a applies and the scheme year after the scheme year in which the product benchmark or PRODCOM code was added to the relevant table is 2027, the relevant period refers to the 2027 scheme year; or

ii where the scheme year after the scheme year in which the product benchmark or PRODCOM code was added to the relevant table is 2030, the relevant period refers to the 2030 scheme year.

18 For the purpose of the regulator calculating (or recalculating where paragraph 15 applies) the preliminary annual number of emissions allowances to be allocated free of charge, the regulator must use the factor provided for under paragraph 14 that is in force at the time the regulator carries out the calculation (or recalculation where paragraph 15 applies).

20 Article 16a amended (cross-sectoral correction factors)¶

Amends Free Allocation Regulation (EU) 2019/331 · 1 insertion

16a Cross-sectoral correction factors

paragraphs 1 – 5 unchanged

5a In respect of the 2027-2030 allocation period, where the benchmarks for the 2028, 2029 and 2030 scheme years have not been adopted on or before 30 September 2026: (a) the calculation referred to in paragraphs 2 to 4 must occur on or after 1 November 2027; (b) the UK ETS authority must publish the matters referred to in paragraph 5 as soon as reasonably practicable after that date; (c) as soon as reasonably practicable after 30 September 2026, the UK ETS authority must issue a statement that the calculation will take place on or after 1 November 2027.

1 Article 16a is amended as follows.

2 After paragraph 5 insert—

21 Article 16b amended (final allocation at installation level for incumbent installations)¶

Amends Free Allocation Regulation (EU) 2019/331 · 1 change, 3 insertions

16b Final allocation at installation level for incumbent installations

1 […] (a)(ii) […] scheme year in the 2027-2030 allocation period subject to paragraph 1a […].

1a Where Article 16(1a) applies the regulator must: (a) as soon as reasonably practicable after the statement referred to in Article 16a(5a)(c), calculate the final annual number of allowances for each installation and sub-installation for 2027 and send to the UK ETS authority; (b) as soon as reasonably practicable after the publication referred to in Article 16a(5a)(b), calculate the final annual number for 2028, 2029 and 2030 (with ALC adjustment carry-over) and send to the UK ETS authority.

paragraphs 2 – 5 unchanged

6 Where Article 16(15) applies (including via Article 16(17)): the regulator must recalculate the final annual number of allowances in the relevant period for each UK CBAM sub-installation, apply ALC adjustments, recalculate at installation level and send the recalculation to the UK ETS authority; paragraph 4 applies after receipt.

7 In this Article: “ALC adjustment” means an adjustment to free allocation under the Activity Level Changes Regulation approved under Article 6a; “relevant period” has the same meaning as in Article 16(16) (or Article 16(17) where it applies).

1 Article 16b is amended as follows.

2 In paragraph 1(a)(ii) after “scheme year in the 2027-2030 allocation period” insert “subject to paragraph 1a”.

3 After paragraph 1 insert—

1a Where Article 16(1a) applies the regulator must in the case of an application for free allocation in the 2027-2030 allocation period under Article 4:

a as soon as reasonably practicable after the issue of the statement referred to in Article 16a(5a)(c):

i calculate the final annual number of allowances to be allocated in respect of each installation and each sub-installation of each installation for the 2027 scheme year; and

ii send the calculation to the UK ETS authority;

b as soon as reasonably practicable after the publication of the matters referred to in Article 16a(5a)(b):

i calculate the final annual number of allowances to be allocated in respect of each installation and each sub-installation of each installation for the 2028, 2029 and 2030 scheme years;

ii where an ALC adjustment applies to the sub-installation for the 2027 scheme year, make an equivalent adjustment to the final number of allowances to be allocated in respect of that sub-installation for the 2028, 2029 and 2030 scheme years and reflect this adjustment in the final number of allowances to be allocated in respect of the installation which the sub-installation forms part of; and

iii send the calculation to the UK ETS authority.

4 After paragraph 5 insert—

6 Where Article 16(15) applies (including as applied by Article 16(17)):

a the regulator must:

i recalculate the final annual number of allowances to be allocated in the relevant period in respect of each UK CBAM sub-installation in accordance with paragraph 2;

ii where an ALC adjustment applies to the UK CBAM sub-installation for the scheme year immediately preceding the relevant period, make an equivalent adjustment to the final number of allowances referenced in point (a)(i);

iii recalculate the final annual number of allowances to be allocated in the relevant period in respect of each installation that has at least one UK CBAM sub-installation, taking into account any adjustment required by point (a)(ii); and

iv send the recalculation to the UK ETS authority;

b after the UK ETS authority receives the recalculation, paragraph 4 applies.

7 In this Article:

a in paragraphs 1a(b) and 6 an “ALC adjustment” means an adjustment to free allocation under the Activity Level Changes Regulation approved by the UK ETS authority under Article 6a of that Regulation;

b in paragraph 6 “relevant period” has the same meaning as provided for in Article 16(16), unless Article 16(17) applies in which case it has the same meaning provided for in Article 16(17).

22 Article 18 amended (preliminary allocation to new entrants)¶

Amends Free Allocation Regulation (EU) 2019/331 · 3 changes, 5 insertions

18 Preliminary allocation to new entrants

1 […] (a) after ~~“for the relevant”~~ insert “scheme year or”. Second sentence: for ~~“Article 16(3), (4), (5) and (7)”~~ substitute “Article 16(2a), (2b), (3), (4), (5) and (7)”; after ~~“and paragraph 2”~~ insert “, but Article 16(15) to (17) does not apply to this calculation”.

paragraphs 2 – 2A unchanged

2B Where the benchmarks for the 2028, 2029 and 2030 scheme years have not been adopted under paragraph 9(b)(ii) on or before 30 September 2026, the calculation under paragraphs 1 and 2 for the 2028, 2029 and 2030 scheme years must be undertaken on or after 1 October 2027.

2C Recalculation rule for UK CBAM sub-installations when a different factor is subsequently provided for under Article 16(14).

2D Definition of “relevant period” for paragraph 2C.

2E Recalculation rule when a PRODCOM code is added to Annex 9.

paragraphs 3 – 8 unchanged

9 In paragraphs 1 and 2, references to benchmarks: (a) for 2025/2026 new entrants, the Annex 8 benchmarks; (b) for 2027-2030 new entrants: 2027 benchmarks are those in Annex 8; 2028–2030 benchmarks are those adopted by order under Part 3 of the Climate Change Act 2008.

1 Article 18 is amended as follows.

2 In paragraph 1(a) after “for the relevant” insert “scheme year or”.

3 In the second sentence of paragraph 1—

a for “Article 16(3), (4), (5) and (7)” substitute “Article 16(2a), (2b), (3), (4), (5) and (7)”;

b after “and paragraph 2” insert “, but Article 16(15) to (17) does not apply to this calculation”.

4 After paragraph 2A insert—

2B Where the benchmarks for the 2028, 2029 and 2030 scheme years have not been adopted under paragraph 9(b)(ii) on or before 30 September 2026, the calculation referred to in paragraph 1 and 2 of preliminary annual number of allowances to be allocated free of charge for the 2028, 2029 and 2030 scheme years must be undertaken by the regulator on or after 1 October 2027.

2C Where the regulator has calculated the preliminary annual number of allowances to be allocated free of charge for a UK CBAM sub-installation for a scheme year and a different factor is subsequently provided for under Article 16(14), the regulator must recalculate the preliminary annual number of emissions allowances allocated free of charge in respect of the relevant period for the UK CBAM sub-installation in accordance with paragraph 1 or 2.

2D In paragraph 2C “relevant period” begins with the scheme year for which the factor has changed under Article 16(14) and ends with the 2030 scheme year; but:

a where paragraph 2B applies and the scheme year for which the factor has changed is 2027, the relevant period refers to the 2027 scheme year; or

b where the scheme year for which the factor has changed is 2030, the relevant period refers to the 2030 scheme year.

2E Where the product benchmark or the PRODCOM code of the product produced in a sub-installation that is not a UK CBAM sub-installation for the 2027-2030 allocation period is subsequently added to the relevant table in Annex 9, the regulator must carry out a recalculation in respect of the sub-installation as if paragraph 2C applied, except that the relevant period is to be read as beginning with the scheme year after the scheme year in which the product benchmark or PRODCOM code was added to the relevant table in Annex 9 and ending with the 2030 scheme year; but:

a where paragraph 2B applies and the scheme year after the scheme year in which the product benchmark or PRODCOM code was added to the relevant table is 2027, the relevant period refers to the 2027 scheme year; or

b where the scheme year after the scheme year in which the product benchmark or PRODCOM code was added to the relevant table is 2030, the relevant period refers to the 2030 scheme year.

5 After paragraph 8 insert—

23 Article 18a amended (assessment of applications and final allocation at installation level for new entrants)¶

Amends Free Allocation Regulation (EU) 2019/331 · 2 changes, 3 insertions

18a Assessment of applications and final allocation at installation level for new entrants

1 […] after ~~“reasonably practicable”~~ insert “after completing the calculation required by Article 18 or the recalculation required by paragraph 4b”.

paragraph 2 introductory text unchanged

2 […] (f)(ii) and (g): after ~~“the relevant allocation period”~~ insert “, unless this calculation has not yet taken place by virtue of the requirement in paragraph 4a” in each place.

paragraphs 3 – 4 unchanged

4a Where the benchmarks for 2028, 2029 and 2030 have not been adopted on or before 30 September 2026: (a) the final calculation for those years must be on or after 1 October 2027; (b) ALC adjustment carry-over from 2027 to 2028–2030.

4b Where Article 18(2C) applies (including via Article 18(2E)), the regulator must recalculate the final number of allowances in the relevant period for the UK CBAM sub-installation, apply ALC adjustments and recalculate at installation level.

4c Definitions: “ALC adjustment” as in Article 16b(7)(a); “relevant period” as in Article 18(2D) or 18(2E).

1 Article 18a is amended as follows.

2 In paragraph 1 after “reasonably practicable” insert “after completing the calculation required by Article 18 or the recalculation required by paragraph 4b”.

3 In points (f)(ii) and (g) of paragraph 2 after “the relevant allocation period” insert “, unless this calculation has not yet taken place by virtue of the requirement in paragraph 4a” in each place that those words appear.

4 After paragraph 4 insert—

4a Where the benchmarks for the 2028, 2029 and 2030 scheme years have not been adopted under Article 18(9)(b)(ii) on or before 30 September 2026:

a the calculation of the final number of allowances to be allocated in respect of each installation and each sub-installation for the 2028, 2029 and 2030 scheme years must be undertaken by the regulator on or after 1 October 2027;

b where an ALC adjustment applies to the sub-installation for the 2027 scheme year, the regulator must:

i make an equivalent adjustment to the final number of allowances to be allocated in respect of that sub-installation for the 2028, 2029 and 2030 scheme years; and

ii reflect this adjustment in the final number of allowances to be allocated in respect of the installation which the sub-installation forms part of.

4b Where Article 18(2C) applies (including as applied by Article 18(2E)), the regulator must:

a recalculate the final number of allowances to be allocated in the relevant period in respect of the UK CBAM sub-installation in accordance with paragraph 3;

b where an ALC adjustment applies to the UK CBAM sub-installation for the scheme year immediately preceding the relevant period, make an equivalent adjustment to the final number of allowances referenced in point (a); and

c recalculate the final annual number of allowances to be allocated in the relevant period in respect of each installation that has at least one UK CBAM sub-installation, taking into account any adjustment required by point (b).

4c In this Article:

a in paragraphs 4a and 4b “ALC adjustment” has the same meaning as provided for in Article 16b(7)(a);

b in paragraph 4b “relevant period” has the same meaning as provided for in Article 18(2D), unless Article 18(2E) applies in which case it has the same meaning provided for in Article 18(2E).

24 Annex VI amended (minimum content of monitoring methodology plan)¶

Amends Free Allocation Regulation (EU) 2019/331 · 1 change

VI (Annex VI) Minimum content of monitoring methodology plan

1(d) Fourth bullet point: after ~~“based on NACE rev. 2 or PRODCOM”~~ insert “, and for the 2027-2030 allocation period identifying which sub-installations are UK CBAM sub-installations and which are not UK CBAM sub-installations”.

1 Annex VI is amended as follows.

2 In the fourth bullet point under paragraph (d) of point 1 after “based on NACE rev. 2 or PRODCOM” insert “, and for the 2027-2030 allocation period identifying which sub-installations are UK CBAM sub-installations and which are not UK CBAM sub-installations”.

25 Annex VIII amended (benchmarks)¶

Amends Free Allocation Regulation (EU) 2019/331 · 2 changes

VIII (Annex VIII) Benchmarks

A–C In each of Tables A, B and C: in the heading, for ~~“and 2026 allocation period”~~ substitute “, 2026 allocation period and 2027 scheme year”; in the benchmark value column, for ~~“and 2026 allocation period”~~ substitute “, 2026 allocation period and 2027 scheme year”.

1 Annex VIII is amended as follows.

2 In Table A, B and C—

a in the heading for each Table for “and 2026 allocation period” substitute “, 2026 allocation period and 2027 scheme year”;

b in the benchmark value column of each Table for “and 2026 allocation period” substitute “, 2026 allocation period and 2027 scheme year”.

26 Annex 9 inserted (identifying UK CBAM status under Article 10(4a))¶

Amends Free Allocation Regulation (EU) 2019/331 · 1 insertion

IX (Annex 9) Identifying UK CBAM status under Article 10(4a)

A new Annex 9 is inserted after Annex VIII. It contains five tables — cement, fertilisers, iron and steel, aluminium and hydrogen — each with three columns: UK CBAM aggregated goods category, PRODCOM code, and product benchmark. A process serves the production of a UK CBAM good where the PRODCOM code or product benchmark of the product produced is listed in the relevant table, subject to any exceptions noted.

After Annex VIII insert—

ANNEX 9

Identifying UK CBAM status under Article 10(4a)

Five tables are provided below and are split by sector covering the following sectors: cement, fertilisers, iron and steel, aluminium and hydrogen. Under Article 10(4a), a process serves the production of a UK CBAM good where the PRODCOM code of the product produced is listed in column B of the relevant table, or where the product produced is covered by the definition of a product benchmark listed in column C of the relevant table, or both, excluding any exceptions provided for in the table. In this Annex, references to “PRODCOM code” are to the PRODCOM codes listed in the Annex to Commission Regulation (EU) No 860/2010⁷; and references to “product benchmark” are to the product benchmarks listed in Annex I to this Regulation.

1 Cement sector

The table relevant to the cement sector is below.

UK CBAM aggregated goods category (column A)	PRODCOM code (column B)	Product benchmark (column C)
Calcined clay	08.12.21.60	None
Cement clinker	23.51.11.00	Grey cement clinker White cement clinker
Cement	23.51.12.10	None
Cement	23.51.12.90	None
Aluminous cement	23.51.12.90	None

2 Fertilisers sector

The table relevant to the fertilisers sector is below.

UK CBAM aggregated goods category (column A)	PRODCOM code (column B)	Product benchmark (column C)
Nitric acid	20.15.10.50	Nitric acid
Ammonia	20.15.10.75	Ammonia
Ammonia	20.15.10.77	None
Mixed fertilisers	20.15.76.00	None
Mixed fertilisers	20.15.3-.- -	None
Mixed fertilisers	20.15.7-.- - Except 20.15.76.00	None

3 Iron and steel sector

The table relevant to the iron and steel sector is below.

UK CBAM aggregated goods category (column A)	PRODCOM code (column B)	Product benchmark (column C)
Sintered ore	07.10.10.00	Sintered ore
Pig iron	24.10.11.00	Hot metal
Pig iron	24.10.14.10	Hot metal
Ferro-alloys	24.10.12.15	None
Ferro-alloys	24.10.12.60	None
Ferro-alloys	24.10.12.90	None
DRI69	24.10.13.00	Hot metal
Crude steel	24.10.21.Z0 24.10.21.10	Hot metal EAF carbon steel
Crude steel	24.10.22.Z0 24.10.22.10	EAF high alloy steel
Crude steel	24.10.23.Z0 24.10.23.10	EAF high alloy steel
Iron or steel products	24.10.14.10	None
Iron or steel products	24.10.31.- - 24.10.41.- - 24.10.51.- - 24.10.32.- - 24.32.10.- - 24.32.20.- - 24.10.T3.30 24.10.61.- - 24.10.62.- - 24.31.10.- - 24.10.71.- - 24.33.11.- - 24.33.20.00 24.31.10.60 24.34.11.- - 24.10.33.- - 24.10.42.00 24.10.34.- - 24.32.10.Z2 24.10.63.00 24.10.64.- - 24.31.30.00 24.10.72.- - 24.33.12.00 24.34.12.00 24.10.53.- - 24.10.35.- - 24.10.43.00 24.10.52.- -	None
Iron or steel products	24.10.54.- - 24.10.55.- - 24.10.36.00 24.32.10.Z1 24.32.10.30 24.32.10.40 24.32.10.50 24.10.65.- - 24.10.66.- - 24.31.20.- - 24.10.73.00 24.10.67.00 24.34.13.00 24.10.74.- - 24.10.75.00 24.51.20.00 24.20.11.- - 24.20.12.- - 24.20.13.- - 24.20.14.- - 24.20.2-.- - 24.20.3-.- - 24.20.4-.- - 24.51.3-.- - 24.52.3-.- - 25.11.21.00 25.11.22.00 25.11.23.10 25.11.23.30 25.11.23.50 23.11.23.60 25.12.10.30 24.33.30.00 25.29.11.10 25.29.11.20 25.29.11.30 25.29.11.50 25.91.- -.- - 25.92.11.- - 25.29.12.00 25.94.11.- - 25.94.12.- - 25.99.29.22 25.99.29.25 25.99.29.27 25.99.29.3- 25.99.29.4-	Iron casting

4 Aluminium sector

The table relevant to the aluminium sector is below.

UK CBAM aggregated goods category (column A)	PRODCOM code (column B)	Product benchmark (column C)
Unwrought aluminium	24.42.11.- -	Aluminium
Aluminium products, except unwrought aluminium	24.42.21.- -	None
Aluminium products, except unwrought aluminium	24.42.22.- -	None
Aluminium products, except unwrought aluminium	24.42.23.- -	None
Aluminium products, except unwrought aluminium	24.42.24.- -	None
Aluminium products, except unwrought aluminium	24.42.25.00	None
Aluminium products, except unwrought aluminium	24.42.26.30 24.42.26.50	None
Aluminium products, except unwrought aluminium	24.42.26.70	None
Aluminium products, except unwrought aluminium	25.12.10.50 25.11.23.70	None
Aluminium products, except unwrought aluminium	25.29.11.70	None
Aluminium products, except unwrought aluminium	25.92.12.- -	None
Aluminium products, except unwrought aluminium	25.29.12.00	None
Aluminium products, except unwrought aluminium	25.93.12.70	None
Aluminium products, except unwrought aluminium	25.93.14.80 25.99.29.55	None

5 Hydrogen sector

The table relevant to the hydrogen sector is below.

UK CBAM aggregated goods category (column A)	PRODCOM code (column B)	Product benchmark (column C)
Hydrogen	20.11.11.50	Hydrogen Except the production of hydrogen within a refinery or organic chemical installation and where this hydrogen is exclusively used within that refinery or installation

Part 4 Activity Level Changes Regulation amended¶

27 Activity Level Changes Regulation amended¶

Commission Implementing Regulation (EU) 2019/1842 is amended in accordance with this Part.

28 Article 3 amended (reporting requirements)¶

Amends Activity Level Changes Regulation (EU) 2019/1842 · 3 changes

3 Reporting requirements

1 [existing text] The requirement that in 2027 this report must include data for the 2 years preceding its submission also applies where the operator has any relevant product/heat/fuel benchmark sub-installation or any relevant process emissions sub-installation within the meaning of Article 4(9) of the Free Allocation Regulation, and this report must reflect the division required by Article 10(4a) of that Regulation.

1a For ~~“a sub-installation of the installation ceases operation”~~ substitute “the condition in either Article 3za(1)(a) or (1)(b) is satisfied”; and for ~~“of cessation”~~ substitute “in which that condition was satisfied”.

1 Article 3 is amended as follows.

2 At the end of paragraph 1 insert “The requirement that in 2027 this report must include data for the 2 years preceding its submission also applies where the operator has any relevant product benchmark sub-installation, relevant heat benchmark sub-installation, relevant fuel benchmark sub-installation or any relevant process emissions sub-installation within the meaning of Article 4(9) of the Free Allocation Regulation, and this report must reflect the division required by Article 10(4a) of that Regulation”.

3 In paragraph 1a—

a for “a sub-installation of the installation ceases operation” substitute “the condition in either Article 3za(1)(a) or (1)(b) is satisfied”;

b for “of cessation” substitute “in which that condition was satisfied”.

29 Article 3a amended (sub-installations for which no historical activity level determined)¶

Amends Activity Level Changes Regulation (EU) 2019/1842 · 2 changes, 1 insertion

3a Sub-installations for which no historical activity level determined

2 […] (b) […] after ~~“Article 18(1)”~~ insert “, and (2B) where relevant,”.

3 […] (b) […] after ~~“Article 18(2)”~~ insert “, and (2B) where relevant,”.

3a Where Article 18(2C) of the Free Allocation Regulation applies, the regulator must recalculate the preliminary and final number of allowances for sub-installations falling within paragraphs 2 and 3 in accordance with points (b) and (c) of those paragraphs.

1 Article 3a is amended as follows.

2 In paragraph 2(b) after “Article 18(1)” insert “, and (2B) where relevant,”.

3 In paragraph 3(b) after “Article 18(2)” insert “, and (2B) where relevant,”.

4 After paragraph 3 insert—

30 Article 5 amended (adjustments to free allocation due to activity level changes)¶

Amends Activity Level Changes Regulation (EU) 2019/1842 · 1 change, 1 insertion

5 Adjustments to free allocation due to activity level changes

paragraphs 1 – 2a unchanged

2b Where the UK ETS authority has approved a recalculation under Article 16b(6)(a) or 18a(4b) of the Free Allocation Regulation of the final number of allowances for a 2027-2030 scheme year, and paragraph 1 or 2 requires the free allocation to be increased or decreased, it is the recalculated final number that is so increased or decreased by the exact percentage change in the average activity level compared to the historical activity level initially used to determine the free allocation.

3 […] after ~~“the Free Allocation Regulation”~~ insert “(but where the UK ETS authority has approved the recalculation under Article 16b(6)(a) or 18a(4b) […], the free allocation of allowances shall be equal to the approved recalculated allocation ignoring any adjustment required by Article 16b(6)(a)(ii) or 18a(4b)(b))”.

1 Article 5 is amended as follows.

2 After paragraph 2a insert—

3 In paragraph 3 after “the Free Allocation Regulation” insert “(but where the UK ETS authority has approved the recalculation under Article 16b(6)(a) or 18a(4b) of the Free Allocation Regulation of the final number of allowances to be allocated for a scheme year in the 2027-2030 allocation period, the free allocation of allowances shall be equal to the approved recalculated allocation ignoring any adjustment required by Article 16b(6)(a)(ii) or 18a(4b)(b))”.

Explanatory Note¶

(This note is not part of the Order in Council)

The United Kingdom Emissions Trading Scheme (the “UK ETS”) was established by the Greenhouse Gas Emissions Trading Scheme Order 2020 (S.I. 2020/1265). The UK ETS runs for 10 “scheme years”, which is split into two “allocation periods” (the 2021-2025 allocation period and 2027-2030 allocation period) and one standalone scheme year (the 2026 scheme year). Operators of certain industrial installations are required to monitor, submit verified reports on, and surrender “allowances” equivalent to, their greenhouse gas emissions each scheme year. Allowances (which are tradable) are held in accounts in the UK ETS registry, and there is a cap on the number of allowances that may be created. Allowances are sold at auction, but some operators of installations receive an allocation of allowances free of charge (“free allocation”) for each scheme year.

This Order amends Commission Delegated Regulation (EU) 2019/331 (the “Free Allocation Regulation”) to make three main changes to the calculation of free allocation for the 2027-2030 allocation period. To implement these main changes across the UK ETS, amendments to the Greenhouse Gas Emissions Trading Scheme Order 2020 and Commission Implementing Regulation (EU) 2019/1842 (the “Activity Level Changes Regulation”) are also made.

The first main change arises as a result of the introduction of the United Kingdom Carbon Border Adjustment Mechanism (“UK CBAM”) from 2027. Industrial installations that operate in one of the five sectors covered by UK CBAM (cement, fertilisers, iron and steel, aluminium and hydrogen) will have their annual free allocation reduced by a set amount over the 2027-2030 allocation period (see articles 19(9) and 22(3) of this Order).

Operators of “incumbent” installations will specify during the second stage of their application for free allocation in the 2027-2030 period whether they operate in any of the five UK CBAM sectors (see article 14(2) of this Order) and some operators may be required to resubmit the data they submitted in their stage one application (see article 14(3) and (6) of this Order). The operators required to resubmit will also be required to modify their monitoring methodology plan and vary their permit (see articles 10 and 16 of this Order) - these operators will later have to resubmit in 2027 the “activity level report” they submitted in 2026 (see article 28(2) of this Order). If an incumbent installation operates in a UK CBAM sector, a UK CBAM reduction factor will be applied to the calculation of their free allocation in each of the 2027-2030 scheme years (see article 19(5) and (9) of this Order). The Secretary of State, the Scottish Ministers, the Welsh Ministers and the relevant Northern Ireland department (collectively referred to as the “UK ETS Authority”) may change the UK CBAM reduction factor that applies in a scheme year via secondary legislation using powers provided for in Part 3 of the Climate Change Act 2008 (c. 27) (see article 19(9) of this Order).

Similarly, “new entrants” are required to inform the regulator, when they apply for free allocation in the 2027-2030 allocation period, if they operate in any of the five UK CBAM sectors (see Article 5(4) and (5) of the Free Allocation Regulation) and if they do, a UK CBAM reduction factor will be applied to the calculation of their free allocation in each of the relevant 2027-2030 scheme years (see article 22(3) of this Order). As above, the UK ETS Authority may make changes to the UK CBAM reduction factor that applies in a scheme year via secondary legislation using powers provided for in Part 3 of the Climate Change Act 2008 (see article 22(4) of this Order).

The second main change is to enable operators of incumbent installations to have their 2020, or 2020 and 2021, scheme year data excluded from the calculation of their “historical activity levels” (the arithmetic mean of their activity levels in the 2019-2023 scheme years) upon which their free allocation entitlement is calculated. This is in recognition of the impact of COVID-19 on activity levels in the 2020, or 2020 and 2021, scheme year/s resulting in historical activity levels that do not represent an installation’s typical activity. Where an operator seeks to have this data excluded, they must inform the regulator during the second stage of their application for free allocation in the 2027-2030 allocation period (see article 14(3) of this Order). Where an operator informs the regulator of this, their historical activity levels are recalculated excluding this data and free allocation for the 2027-2030 allocation period is based on this recalculated historical activity level (see article 14(5) of this Order).

The third main change is to provide that existing “benchmarks” (which reflect an average emissions intensity per unit of product of the most efficient installations in each sector) in Annex 8 to the Free Allocation Regulation will be used to calculate free allocation in the 2027 scheme year (an installation’s historical activity level is multiplied by the relevant benchmark as part of the calculation), and that the UK ETS Authority will subsequently adopt updated benchmarks for the 2028, 2029 and 2030 scheme years via secondary legislation using powers provided for in Part 3 of the Climate Change Act 2008 (see articles 19(9) and 22(5) of this Order). Where the UK ETS Authority does not adopt updated benchmarks for the 2028, 2029 and 2030 scheme years by 30 September 2027, the existing Annex 8 benchmarks will apply (see article 13(3) of this Order).

This Order also makes an amendment to the Activity Level Changes Regulation to clarify that the reporting requirement in Article 3(1a) (which will come into force on 1st January 2026) applies in all circumstances in which Article 3za applies (recalculation of FA entitlements) even if the installation is not an “FA installation” at the end of the relevant scheme year (see article 28(3) of this Order).

An impact assessment is available from the Industrial Decarbonisation and Emissions Trading Directorate, Department for Energy Security and Net Zero, 3-8 Whitehall Place, London SW1A 2JP and is available alongside this Order on www.legislation.gov.uk.

Footnotes

1
2008 c. 27.
2
S.I. 2020/1265, amended by S.I. 2020/1557, 2021/1455, 2022/454, 2022/1173, 2023/850, 2023/1267, 2023/1387, 2024/192, 2024/1366, 2025/100 and 2025/124.
3
2008 c. 27.
4
S.I. 2025/124.
5
2008 c. 27.
6
2008 c. 27.
7
Commission Regulation (EU) No 860/2010 of 10 September 2010 establishing for 2010 the ‘Prodcom list’ of industrial products provided for by Council Regulation (EEC) No 3924/91 (OJ No. L 262, 5.10.2010, pp. 1–258).