UK Government Confirms Integration of CDR into ETS
Following last summer’s consultation, to which Carbonaires responded, the Government has now confirmed in their response that certified CDR will be brought into the UK Emissions Trading Scheme (UK ETS).
The move keeps the UK ahead of other jurisdictions in both timing and policy clarity in relation to CDR, and aligns with its ambition to be a global hub for carbon‑market activity.
Why integrate removals?
Net‑zero duty: The UK must legally reach net‑zero by 2050, meaning residual emissions will need to be balanced by removals.
Cost control: As the ETS cap tightens and UKA prices rise, allowing removals helps industry manage compliance costs while stimulating domestic CDR supply.
Deployment targets: Government aims for 5 Mt CO₂ yr of engineered removals by 2030, ~23 Mt by 2035, and 75–81 Mt by 2050.
Key design points
Legislation & start‑date: Legislation by end‑2028; operational from end‑2029.
Eligibility: Initially, only ex‑post removals generated in the UK (BECCS and DACCS) with ≥ 200‑year durability.
Allowance mechanics: A greenhouse‑gas removal allowance (GGRA) will displace one regular UKA, a “one in one out” mechanism, keeping the gross cap unchanged. The Authority may later shift to a net cap that excludes GGRAs.
Standards: Projects must satisfy the forthcoming UK GGR Standard (BSI minimum quality thresholds for the methodologies are out for consultation now – BECCS and DACCS).
Market access: Transitional supply controls at the beginning, and GGRA auctions will be introduced to facilitate a route to market for developers
Buffer pools will be used to address reversals and aid fungibility.
Future scope: Other pathways (e.g. Woodland Carbon Code) remain under review, with further consultation promised.
Market implications
Momentum is often discussed in markets, yet it is rare for policy to land almost exactly where practitioners have been heading for years. Bringing removals into the UK ETS moves them from the fringe to the core of compliance and gives investors in high‑quality projects the clarity they have long sought. Developers operating in, or supplying to, the UK can now see firmer parameters. Initial eligibility will focus on DACCS and BECCS, but other pathways may follow if they satisfy the standard; woodland credits remain under review for possible future inclusion.
The decision also sends the strong demand signal the sector needs. UK removal allowances will trade in a real compliance market, underpinning long‑term offtake contracts and unlocking project finance. Companies covered by the UK ETS now have a clear route to integrate removals into their wider decarbonisation strategies.
Price is a concern: engineered removals generally exceed £200 per tonne, while UKAs trade at about £40–50. To bridge the gap, the Government intends to introduce a Greenhouse Gas Removal Business Model, using carbon contracts for difference that top up revenues for up to fifteen years, thereby reducing market risk for developers and financiers.
For now, only domestic removals qualify. Once the Article 6 market matures, overseas projects with a corresponding adjustment may be admitted, provided domestic abatement remains the priority. The Climate Change Committee has stressed that the UK should not rely on international credits at this stage.
These choices will shape forthcoming talks on linking the UK and EU ETSs, which begin this autumn. The European Commission will not publish its own removal‑integration proposal until mid‑2026, so practical convergence in the EU context is unlikely before 2031, when the next phase of the EU ETS begins. Alignment will depend on whether credits certified under the EU’s CRCF match the quality and design of the UK GGR Standard, and on both systems adopting compatible integration rules. As each scheme evolves, the gap may widen, making eventual linkage more complex.