Since 1 July 2026, ships operating on domestic UK voyages have been brought within the scope of the UK Emissions Trading Scheme (UK ETS). For owners and charterers already navigating the EU ETS, the UK regime adds a further layer to an increasingly complex regulatory environment — and a further carbon cost to price into trades that were previously unpriced in the UK.

How an ETS works

An emissions trading scheme puts a price on emissions without prescribing how they should be reduced. The regulator sets a cap on the total greenhouse gases that sectors in the scheme may emit, and that cap is divided into allowances, each broadly representing the right to emit one tonne of carbon dioxide equivalent. Operators monitor their emissions and surrender matching allowances. As the cap tightens over time, allowances become scarcer and the commercial incentive to cut emissions grows. In essence, an ETS functions like a gradually shrinking budget: the industry decides where best to spend it, but the overall budget is designed to contract in line with climate targets.

For shipping, the best-known reference point is the EU Emissions Trading System. Launched in 2005, the EU ETS was the world's first carbon market and remains one of the largest. Maritime transport has been included since 2024, covering emissions from voyages involving European Economic Area ports and emissions at berth within the EEA.

The EU scheme is not an isolated case. Carbon pricing is spreading through a patchwork of regional and national initiatives; around 40 emissions trading systems are currently in force globally, including ETS-type mechanisms in jurisdictions as varied as Australia, Mexico and Kazakhstan. For shipping, this regional patchwork sits alongside the IMO's global framework — including the 2023 revised GHG strategy and the Energy Efficiency Existing Ship Index (EEXI) and Carbon Intensity Indicator (CII) ratings — meaning operators now face market-based measures and technical efficiency rules at both global and regional levels.

Domestic scope for now

The UK developed its own ETS after leaving the EU. Originally limited to power generation, aviation and energy-intensive industries, the scheme was extended to maritime transport through the Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026.

At this stage, the UK ETS applies to ships of 5,000 gross tonnage and above, regardless of flag, covering carbon dioxide, methane and nitrous oxide emissions from domestic UK voyages and in-port activities from 1 July 2026. A domestic voyage is one that begins and ends at a UK port of call, including voyages beginning and ending at the same UK port — although the UK has introduced a 50% surrender deduction for voyages between Great Britain and Northern Ireland, easing the cost burden on the sea corridor that carries the bulk of Northern Ireland's goods traffic. In-port activity includes emissions at berth and movements within a UK port of call. Even where a voyage is international and therefore not yet covered as a sea passage, emissions while a ship is in a UK port may still fall within scope.

Offshore ships will be included from 1 January 2027. Certain exemptions continue to apply, including for specified government activities, fish-catching and fish-processing ships, and Scottish ferry services as defined in the legislation.

Compliance requirements

Responsibility for compliance rests with the "maritime operator" — in practical terms, usually the registered owner, unless an ISM company has assumed responsibility under a written agreement and the required evidence has been provided to the regulator. For operators registered outside the UK, the relevant regulator is the Environment Agency. Owners may wish to verify what their ship management agreement provides.

The administrative cycle will feel familiar to operators already handling EU ETS or MRV (Monitoring, Reporting and Verification) requirements, but it is not identical. The UK ETS has its own compliance infrastructure and timetable: maritime operators must set up a METS account, apply for an emissions monitoring plan within 42 days of their first UK ETS maritime activity, monitor greenhouse gas emissions under that plan, have the annual emissions report verified by a UKAS-accredited verifier, and submit the verified report. These administrative steps carry costs.

Maritime operators must use UK Allowances (UKAs) and manage compliance through the UK ETS Registry, whereas EU ETS compliance is administered through the Union Registry and requires the surrender of EU Allowances (EUAs). Dual compliance therefore means operating two registry accounts and managing exposure to two separate allowance markets, since UKA and EUA prices can diverge.

Under the UK ETS, emissions generated between 1 January and 31 December 2028, for example, must be verified and reported by 31 March 2029, with the corresponding allowances surrendered shortly afterwards, by 30 April 2029 — compared with 30 September under the EU ETS. A transitional arrangement allows allowances relating to both the shortened 2026 scheme year and the 2027 scheme year to be surrendered together by 30 April 2028.

Failure to surrender sufficient UK allowances by the 30 April deadline may result in penalties under Article 52 of the UK ETS Order. The penalty is not maritime-specific: it is calculated per allowance not surrendered, at £100 multiplied by the statutory inflation factor, and paying it does not remove the obligation to surrender the missing allowances. If the deficit persists, the regulator may issue a deficit notice and further penalties may follow. In the EU, by comparison, a ship may be refused port entry or even detained.

Expansion likely ahead

Further change is expected. The UK ETS Authority has consulted on extending the scheme from 2028 to cover 50% of emissions from international voyages to and from the UK. The proposal broadly mirrors the EU ETS treatment of extra-EEA voyages and aligns with ongoing UK-EU discussions aimed at ensuring the two systems develop in a coordinated manner. Operators calling at both UK and EEA ports should therefore track how the two schemes interact, since voyage legs could in due course attract obligations under both regimes.

The 5,000 GT threshold will also be reviewed in 2028 and could be lowered to 400 GT in future. These proposals are relevant when negotiating longer-term fixtures and drafting clauses intended to survive regulatory change.

BIMCO clause available

BIMCO published an Emission Trading Scheme Allowances Clause for Time Charter Parties in 2022, which is not limited to the EU ETS. It defines an "Emission Scheme" as including the EU ETS and "any other similar systems" imposed by lawful authorities. BIMCO's guidance states that the clause was designed to apply to future emissions schemes worldwide and would cover the UK ETS.

The clause rests on the principle that the party providing and paying for the fuel under a time charter should also provide and pay for the corresponding emissions allowances, while owners monitor and report emissions and supply the data and calculations needed for the transfer of allowances. In the absence of bespoke provisions, it offers an off-the-shelf solution for owners and charterers allocating the costs of UK ETS compliance.

Source: Gard