Expansion of UK Emissions Trading Scheme into the domestic maritime sector: Final Business and Regulatory Impact Assessment 2026

Executive Summary

Issue and why it needs to be addressed

The UK ETS incentivises cost-effective decarbonisation by putting a price on greenhouse gas emissions. Domestic maritime emissions are currently outside the scheme, leaving a gap in carbon pricing for a sector that contributes to Scotland’s greenhouse gas emissions. Including these emissions contributes towards the achievement of statutory climate targets across the UK and ensures alignment with EU ETS developments, helping to avoid market distortion and enable future linkage. Without intervention, emissions from maritime transport would remain unpriced, undermining progress toward net zero.

Intended outcomes

The expansion of the UK ETS to domestic maritime will apply a carbon price to in-scope emissions from domestic voyages and in-port activities, incentivising emissions reductions. It will also align the UK ETS with the EU ETS to avoid market distortion and maintain competitiveness.

Options considered

Following consultation, four options were assessed for expanding the UK ETS to domestic maritime:

• Option A: the preferred approach, introduces exemptions to protect regional connectivity in Scotland, avoids introducing competitive distortions for the UK fishing sector, and applies sensible treatment to government maritime activity.
• Option B: maximises emissions coverage in UK domestic maritime by assuming no exemptions. Not considered deliverable in a policy context given the importance of maintaining regional connectivity across Scotland.
• Option C: mirrors the preferred policy package in Option A, but explores the emissions impact under no adjustment to the UK ETS cap when expanding to UK domestic maritime.
• Do Nothing (Business as usual): the counterfactual scenario where the UK ETS is not expanded to include UK domestic maritime. Not considered a viable option, as it would not achieve the policy aim.

Sectors affected

The policy primarily affects shipping operators whose vessels are of 5,000 gross tonnage (GT) or above, operating on domestic routes within UK waters and/or generating in-port emissions. Exemptions apply to:

• Vessels undertaking government activities
• Ferry services to Scottish islands and peninsulas (to be reviewed as part of the 2028 threshold review)
• Fish-catching and fish-processing ships (to be reviewed as part of the 2028 threshold review)
• Specific activities including search and rescue.

Offshore vessels will be brought into scope from January 2027 to align with the EU ETS and prevent market distortion.

Engagement completed and planned

Between November 2024 and January 2025, the UK ETS Authority carried out a UK-wide consultation that engaged 205 stakeholders, including Scottish operators. Targeted engagement also took place with ferry services, fisheries, shipping sectors, SEPA, and relevant policy units.

Engagement will continue through ongoing liaison with industry representatives and regulators throughout the implementation phase to ensure operators understand their obligations and to support compliance with the expanded scheme.

Anticipated impacts and mitigation

The expansion of the UK ETS to domestic maritime is expected to incentivise decarbonisation, support delivery of Scotland’s emissions reduction targets, and maintain alignment with the EU ETS to reduce risks of carbon leakage, which will be monitored. However, the policy introduces new compliance and administrative costs for operators and could create financial challenges for some businesses.

To mitigate these impacts, the preferred Option A includes targeted exemptions for Scottish island ferries, fish-catching and fish-processing ships, and government maritime activity; phased inclusion of offshore vessels from 2027; and alignment with existing UK monitoring, reporting and verification (MRV) systems to minimise administrative burdens.

Enforcement and compliance

SEPA will lead enforcement in Scotland via the UK ETS Registry and METS platform^[1]. Vessel owners hold primary responsibility, with delegation permitted to ISM Companies^[2].

Implementation plan

The recommended approach is to proceed with expansion of the UK ETS to include domestic maritime emissions, as set out in the Authority’s Final Response. The legislative framework will be delivered through a Statutory Instrument laid in draft in January 2026. Guidance and digital tools will be provided via the UK ETS Registry and METS platform, and monitoring arrangements will track impacts on Scottish businesses and intra-UK trade to inform post-implementation review in 2028.

Evaluation and review

A post-implementation review is scheduled for 2028, including assessment of thresholds, exemptions, and potential inclusion of international voyages.