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

4. Assessment

4.1 Evidence summary

12 vessels currently serving island and peninsula communities exceed 5,000GT and fall within the scope of the UK ETS. A further five vessels of this size are expected to enter service during the scheme period.

While the UK ETS expansion into domestic maritime won’t directly affect island and peninsula communities, it will impact the operators serving them.

Consultation responses made clear that expanding the UK ETS could influence operators’ commercial decisions – prompting them to reduce emissions or purchase allowances, which would raise operating costs. These costs could be passed on to passengers or lead to changes in service, such as reduced frequency or different vessel types.

Given the distinct transport needs of islands and peninsula communities, including vessels over 5,000GT in the UK ETS could have a disproportionate impact on these communities compared with other communities.

4.2 Proposed mitigation

Based on the evidence available and responses to the consultation, the Authority has decided to exempt ferries serving Scottish island and peninsula communities, to prevent additional burdens on ferry services that support the social and economic viability of these communities.

The Authority will review the exemption as part of the UK ETS scheme-wide review in 2028. The review will draw on two years of sector data and assess the potential implications of EU–UK ETS linking.^[7] Any changes to how the UK ETS is applied to the domestic maritime sector after the review will be subject to further consultation.

By exempting these vessels, the Authority removes the need for operators to purchase UK ETS allowances for ferry services to, from, and between islands and peninsulas in Scotland. This decision avoids additional costs that would otherwise be passed on through higher passenger fares or increased taxpayer subsidies under existing contractual arrangements to offset revenue shortfalls for operators caused by the charges.

4.3 Expected impact

The Scottish Government expects no differential impacts on Scotland’s island and peninsula communities from UK ETS expansion into the domestic maritime sector for the duration of the exemption. To ensure this remains the case, the Scottish Government and the wider UK ETS Authority will continue to monitor the effects on these communities.