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UK ETS Expansion Triggers Industry Alarm Over Costs, Connectivity and Climate Impact
UK ETS Expansion Triggers Industry Alarm Over Costs, Connectivity and Climate Impact
The UK government is pressing ahead with plans to bring domestic shipping into its carbon market from mid-2026.
But shipowners are warning that without infrastructure, fuel alternatives or revenue reinvestment, the policy could add cost without cutting carbon.
The UK’s maritime sector has sharpened its response to Westminster’s decision to extend the UK Emissions Trading Scheme (UK ETS) to domestic shipping.
Under the Draft Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026 — approved by MPs on February 11 — vessels of 5,000 gross tonnes and above trading between UK ports will enter the scheme from 1 July 2026.
From that date, operators must monitor, report and surrender carbon allowances for 100% of their carbon dioxide, methane and nitrous oxide emissions — including emissions produced while alongside in port. Offshore vessels will follow from 2027.
The first compliance window will cover 1 July to 31 December 2026, with verified reports due by 31 March 2027. A transitional measure allows operators to submit both 2026 and 2027 allowances together by 30 April 2028.
Compliance shifts firmly to owners
Responsibility for compliance will rest with the registered owner unless formally transferred to another ISM-responsible party such as a bareboat charterer or technical manager.
The penalty for non-compliance is significant: £100 per tonne of CO₂ equivalent shortfall, indexed to inflation, on top of the obligation to surrender the missing allowances.
For technical departments and compliance managers, that means monitoring plans, verifier appointments and reporting systems must be fully operational within months — a timeline many owners describe as compressed, given the regulations were only published in mid-January.
Industry support — with conditions
The UK Chamber of Shipping says it backs the UK’s decarbonisation ambitions. The concern, it argues, lies in how and when the scheme is being implemented.
Alternative fuels remain four to five times more expensive than conventional marine fuels. Shore power infrastructure is patchy. Grid capacity at many ports is limited.
Without targeted reinvestment of ETS revenues into maritime decarbonisation — such as shore power, vessel retrofits, clean fuel development and port grid upgrades — the Chamber warns the policy risks becoming a financial levy rather than a transition mechanism.
There is also concern about alignment with the European Union Emissions Trading System. Industry voices caution that without coordination, UK operators trading across borders could face overlapping carbon costs, increasing the risk of competitive distortion or carbon leakage.
Pressure on ferry and island routes
Perhaps the most sensitive issue involves ferry operators serving island and remote communities.
Unlike some Scottish island routes that benefit from protections under the EU system, equivalent safeguards have yet to be clearly defined under the UK framework. Operators on lifeline services often have limited ability to absorb additional costs without passing them on to passengers and freight customers.
For communities dependent on regular maritime links, that cost pressure could ripple far beyond the balance sheet.
A cap-and-trade system entering its next phase
The UK ETS was launched in 2021 following Brexit and closely mirrors the structure of its European counterpart, operating under a cap-and-trade model. The government has already confirmed the scheme will move into a second phase from 2031 to 2040.
Shipping’s inclusion marks a significant structural shift for domestic maritime operations — one that will directly affect budgeting, chartering strategies and technical investment decisions.
Industry leaders say they are ready to engage constructively. But they are calling for a phased introduction — potentially a “monitor-only” period — to give shipowners, managers and ports time to prepare systems and infrastructure.
The core message from operators is clear: decarbonisation must be workable, not punitive.
Why This Matters
- For shipowners: Carbon cost exposure becomes a direct operational expense on domestic voyages, requiring tighter emissions tracking and financial planning.
- For chief engineers and technical teams: Monitoring, fuel optimisation and port emissions management will now carry financial consequences.
- For ferry operators and island services: Added costs could challenge route economics unless protective measures or subsidies are clarified.
- For maritime investors and startups: Shore power, grid upgrades, clean fuel supply chains and digital MRV solutions are likely to see increased demand — if revenues are reinvested strategically.
The transition to low-carbon shipping is underway. The question now is whether policy design will accelerate progress — or unintentionally strain the very networks it aims to green.
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