UK ETS for the Maritime Sector – Update – Part 1 of 2

In November 2025, the UK Emissions Trading Scheme (UK ETS) Authority issued the main response to its earlier consultation on extending the UK ETS to the domestic maritime sector (UK-UK port voyages), with the implementation date scheduled for 1 July 2026.

We examine the implications of the Authority’s main policy decisions for the maritime sector and review the recent proposal to expand the scheme to international voyages from 2028, subject to negotiations with the EU.

UK ETS

The UK ETS was introduced on 1 January 2021 under the Greenhouse Gas Emissions Trading Scheme Order 2020. It operates on a “cap and trade” principle: each year, a limit is set on the total volume of certain greenhouse gases that sectors covered by the scheme may emit. 

Participants receive a number of free allowances and/or purchase emissions allowances at auction or on the secondary market. The cap is designed to decrease over time, creating an incentive for participants to reduce emissions in order to remain within their allocated limits.

The UK ETS broadly mirrors the structure of the EU ETS and, following Brexit, replaced the UK’s participation in the EU framework. It now operates as a separate, domestic scheme with its own cap and governance structure. Nonetheless, many of the EU ETS’s core features have been retained, including the cap-and-trade system, the free allocation and auction mechanisms, and, specific to the maritime sector expansion, many of its technical definitions which are explored below. 

The approach around the UK ETS falls in line with the joint announcement made on 19 May 2025 by the European Commission and the UK Government, committing to linking their respective emissions trading systems to enhance bilateral cooperation. 

Maritime UK ETS Main Response

In step with the Authority’s ongoing mission to reduce emissions in all economic sectors, the consultation “UK ETS scope expansion: maritime sector” was launched in November 2024 to assess expanding the scheme to the previously excluded maritime sector. This resulted in an interim response and a main response setting out the final proposals for the expansion. The key features are summarised below.

Commencement Date

The first “year” of the scheme will run from 1 July 2026 to 31 December 2026 (six months). 

Subsequent years will run from 1 January to 31 December each year (Calendar Year). 

Reporting Period and the “Double-Surrender” Exception

The reporting period covers one Calendar Year. A verified emissions report must be submitted by 31 March (of the year following the reporting period) to the regulators through the Manage Your UK Emissions Trading Scheme (METS) system. 

Emissions allowances must be surrendered by 30 April of the year following the reporting period. 

As noted above, the first reporting period will cover only six months, from 1 July to 31 December 2026, with the deadline for the verified report set for 31 March 2027. 

To facilitate the smooth implementation and to allow maritime operators sufficient time to adapt to the reporting duties, a one-off “double-surrender” concession will apply to the 2026 and 2027 scheme years. Under this concession, maritime operators must still submit annual reports on time, but the emissions allowance for 2026 will not need to be surrendered until 30 April 2028, together with the 2027 allowance. 

From 2027 onwards, the reporting period will align with the Calendar Year. The second reporting period will therefore run from 1 January to 31 December 2027, with the verified emissions report due by 31 March 2028 and the corresponding allowance surrender by 30 April 2028.

Types of Ships, Exemptions and Discounts

All ships that are 5,000 gross tonnages (GT) and above (except for offshore ships, which are not included initially) will be subject to the UK ETS obligations. The tonnage threshold will be reviewed in 2028 to consider whether it should be lowered. Examples of vessels in scope include large roll-on/roll-off ferries, passenger cruise ships operating on UK coastal routes, and cargo or container feeder ships 5,000 GT and above.

Offshore ships

Offshore ships will not be included in the 2026 reporting year but will be included from 2027 thereby aligning with the EU ETS’s own expansion timeline for offshore ships. Further details of how the scheme will apply to these ships, the types of offshore ships included in the scheme and details on offshore facilities will be provided in future legislation and guidance. 

Exemptions

Key exemptions apply primarily to government non-commercial ships such as those carrying out emergency/medical services, search and rescue activities (coastguard), research activities, military/police activities and customs/border force activities. 

Other exemptions include the General Lighthouse Authority, ferry services to Scotland’s islands and to certain peninsular communities, and ships for fish catching and processing (fishing ships are excluded in order to maintain continuity for the fishing sector as fishing ships are not captured by the EU ETS). 

While not addressed in the main response, the Authority stated in their interim response that voyages to and from the Crown Dependencies or British Overseas Territories would also be excluded. 

Discounts

There will be a 50% deduction from UK ETS surrender obligations for voyages between Northern Ireland and Great Britain. 

Types of Emissions, Responsibility and Enforcement

Emissions from “domestic voyages” which include any journey between two UK ports (excluding those between Crown Dependencies or British Overseas Territories), as well as round trips that start and end at the same UK port, and all emissions during these voyages – whether at sea, at anchor, or while moored – will be captured. 

Emissions

These emissions include carbon dioxide, methane, and nitrous oxide, with the latter two being calculated on a CO2 equivalent basis (CO2e) according to their Global Warming Potential. For example, 1 tonne of methane will correspond to approximately 29 tonnes of CO2e under the UK ETS. 

Responsibility

The Registered Owner (as the Maritime Operator) of a ship is responsible for compliance with the UK ETS, except where such responsibility has been delegated by a legally binding agreement to an entity which has assumed responsibility for the ship’s operation and the duties imposed by the ISM Code. This could include bareboat charterers and ship management companies. Where such arrangement has not been made, the UK ETS obligations will apply to the Registered Owner by default. 

UK ETS Clauses

Pursuant to the above, each individual owner will be free to negotiate their own contractual agreements and determine the party entitled to recover the emissions trading costs and the mechanism for doing so. 

No legislative provisions will entitle the shipowner to recover UK ETS compliance costs from parties operating the ship; accordingly, shipowners will need to ensure that their charterparty agreements and other operational contracts clearly allocate responsibility for the compliance costs. 

Enforcement

The Authority has proposed that the enforcement mechanisms for non-compliance with the UK ETS currently applied to aviation operators will also apply to the maritime sector. Failure to report emissions may, at the discretion of the regulator, result in civil penalties. Information on the specific penalties adjusted to apply to the maritime sector are yet to be released. 

Failure to meet the surrender deadline, or to surrender sufficient allowances to cover emissions, will result in operators facing a mandatory penalty of GBP100/tonne of CO2 (multiplied by the inflation factor). 

In addition to this penalty, operators will also be required to acquire and surrender the outstanding allowance necessary to cover their reported emissions.

Phase II

On 4 December 2025, the Authority published a response to its earlier consultation on Extending the UK Emissions Trading Scheme cap beyond 2030, which closed on 9 April 2025. The Authority announced that the UK ETS would be extended beyond 2030 into a Phase II that would run for 10 years, from 1 January 2031 to 31 December 2040, and further indicated that banking of allowances would be permitted between Phase I and Phase II of the Scheme.