UK Emissions Trading Scheme – Scope Expansion to Domestic Maritime - Island Communities Impact Assessment (ICIA)

2. Background

The UK ETS was established on 1 January 2021 by the UK ETS Authority ('the Authority'), formed by the Scottish, UK, and Welsh Governments, and the Department of Agriculture, Environment and Rural Affairs for Northern Ireland. The UK ETS aims to incentivise cost-effective decarbonisation across energy-intensive industries, the non-renewable power sector, and aviation.^[2]

Since its establishment in 2021, the UK ETS Authority has undertaken a series of consultations. Those relevant to this ICIA are:

• "Developing the UK ETS" consultation (2022): This proposed strengthening the scheme, including expansion to domestic maritime from 2026. The Authority’s response was published in 2023.^[3]
• The aforementioned "UK Emissions Trading Scheme Scope Expansion: Maritime" consultation (2024): This set out detailed plans for including domestic maritime in the UK ETS from 2026 and explored future scope for additional maritime emissions. The interim response was published in July 2025, and the main response in November 2025.

In light of the intention to expand the UK ETS to domestic maritime, the Scottish Government published an ICIA in 2023^[4] to consider potential impacts on island communities. The assessment found that including vessels over 5,000 gross tonnage (GT) in the UK ETS would cover some ferries that provide essential connectivity for island communities. Operators would therefore face new emissions obligations—either through reducing emissions or purchasing allowances. It concluded that this could create upward pressure on fares or, alternatively, service reductions—both of which would have direct and adverse impacts on island communities.

The policy changes outlined in the main Authority response to the "UK Emissions Trading Scheme Scope Expansion: Maritime" consultation and in the subsequent secondary legislation are as follows:

• Expansion of the UK ETS to cover domestic maritime emissions including carbon dioxide, methane, and nitrous oxide.
• Vessels of 5000 GT and above will be in scope of the UK ETS.
• Implementation from 1 July 2026, with full inclusion of offshore vessels delayed until 1 January 2027 to align with the EU ETS and avoid market distortions.
• Exemptions for:
  • ferries serving Scotland’s islands and peninsulas to safeguard access to essential goods, healthcare, education, and employment; and
  • fishing vessels (both to be reviewed in 2028).
  • Government activities such as military, customs, police, coastguard, emergency/medical and government research, as well as activities of the General Lighthouse Authorities.
• Requirement for operators to comply with Monitoring, Reporting and Verification (MRV) obligations.
• Adjustment of the overall UK ETS cap to accommodate domestic maritime emissions, ensuring scheme integrity while providing a phased and proportionate approach to decarbonisation.
• Commitment to consider the future inclusion of international voyages within the scheme.

The 2023 ICIA reviewed the policies proposed for domestic maritime inclusion in the UK ETS and identified the inclusion of ferry vessels as the main impact on Scottish island communities. Following subsequent policy development and the proposal of an exemption for Scottish ferries, this ICIA will focus on whether this proposal mitigates the identified impact.

For analysis of the impact these changes have on businesses, please refer to the Business and Regulatory Impact Assessment, to be published early 2026, and the Authority Impact Assessment published alongside the response to the "UK Emissions Trading Scheme Scope Expansion: Maritime" consultation.