Draft Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026
(Limited Text - Ministerial Extracts only)
Read Full debateThe Committee divided: - Ayes: 12 / Noes: 4 - Question accordingly agreed to.
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Chris McDonald)
I beg to move,
That the Committee has considered the draft Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026.
I am grateful to you, Sir Jeremy, and to the Committee for its consideration of the draft order, which was laid before Parliament on 13 January 2026. The UK ETS was established under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions trading scheme contributing to the UK’s emissions reduction targets and net zero goal. The scheme was established to increase the climate ambition of the UK’s carbon pricing policy, while protecting the competitiveness of UK businesses.
The scheme is run by the UK ETS Authority, a joint body involving the UK Government and the devolved Governments. Under the scheme, a cap is set on the amount of certain greenhouse gases that may be emitted by the sectors it covers, and the cap is reduced over time so that total emissions must fall. Under the UK ETS, operators participating in the scheme are required to monitor, report on and surrender allowances in respect of their greenhouse gas emissions.
The scope of the UK ETS is being expanded to maritime activities as part of the Government’s strategy of decarbonising all sectors of the UK economy to meet our net zero target by 2050. The draft order is an effective lever to reduce emissions and delivers on a key commitment in the UK’s maritime decarbonisation strategy. We expect it to help to overcome key barriers to maritime decarbonisation by incentivising low-carbon fuels, fuel-efficient technologies and fuel-efficient operating practices.
The statutory instrument amends the legislation that gives effect to the UK ETS. It expands the scheme to cover carbon dioxide, methane and nitrous oxide from domestic voyages and in-port activities in the UK. Effective from 1 July 2026, maritime operators are required to participate in the scheme and allowed to bid at auction for UK allowances. The instrument will apply to ships of 5,000 gross tonnage and above, but a small number of exemptions apply, such as for Government ships, including military and law enforcement ships, and ferries operating services to Scotland’s islands and peninsulas.
The provisions set out in the instrument require the maritime operator of a ship—either its registered owner or the company responsible for its compliance with the international safety management code—first to obtain an emissions monitoring plan in which it will document the processes used to ascertain their ships’ emissions. For each scheme year, maritime operators will be expected to monitor, independently verify and report their maritime emissions to the relevant regulator, and surrender an equivalent level of allowances.
The instrument also introduces the concept of surrender deductions, reducing by 50% the number of allowances for surrender in respect of voyages between Great Britain and Northern Ireland, to deliver equivalence in carbon pricing on routes across the Irish sea. Operators will be assigned to a UK ETS regulator based on the location of their registered office or place of residence. This is the same approach as for aircraft operators. One emissions monitoring plan will cover all the ships for which the maritime operator is responsible, and emissions must be monitored using one of the four methods prescribed in the instrument.
Maritime operators will be required to report emissions from all ships for which they are responsible through an annual emissions report, which must be submitted to the regulator on or before 31 March in the year following the scheme year to which it relates. Maritime operators have an obligation to verify their annual emissions report. The verification must be carried out by an impartial and accredited verifier, independent from the maritime operator. If satisfied, the verifier will draft a verification report, which will be submitted to the regulator alongside the annual emissions report.
Maritime operators will also be required to surrender a level of allowances equivalent to their emissions by 30 April in the year following the scheme year. However, the instrument introduces the concept of double surrender, whereby the date by which allowances must be surrendered in relation to the first scheme year, 2026, is 30 April 2028 and not 30 April 2027, as would otherwise be the case.
These changes follow comprehensive engagement and consultation with stakeholders. The UK and devolved Governments carried out a consultation in 2022 on the development of the UK ETS, including whether to include maritime activities in the scheme. A second consultation ran between 28 November 2024 and 23 January 2025, seeking views on the details of how maritime would be incorporated in the UK ETS from 2026. The relevant responses to those consultations were summarised in the interim and main authority responses published in July and November 2025, respectively.
The expansion of the UK ETS to cover maritime activities will support its role as a fundamental pillar of the UK’s climate policy. It plays a key part in the Government’s strategy of decarbonising all sectors of the UK economy to meet our net zero target by 2050. It also delivers on a key commitment within our maritime decarbonisation strategy, and I commend the draft order to the Committee.
Chris McDonald
I thank all right hon. and hon. Members for their contributions to the debate. I hope to be able to respond to them.
We heard, from the shadow Minister, the hon. Member for West Aberdeenshire and Kincardine, the Opposition’s clear objections to the emissions trading scheme. We also heard them last week, in a statutory instrument debate about the emissions trading scheme and the future introduction of the carbon border adjustment mechanism. This is clearly a significant change in policy from the Opposition, as they line themselves up with the climate deniers in the hope that they might scrounge some votes back from Reform, but—[Interruption.] It absolutely is a desperate measure.
The shadow Minister talks about protection for industry. We discussed that extensively in this Committee Room last week. Of course, the carbon border adjustment mechanism is precisely there to protect British industry from unfair competition from imports from more polluting industries in countries without such regulations. The Opposition’s objections to the carbon border adjustment mechanism, which we heard in this room last week, actually put British industry on the block. I do wonder whether they have fully thought through their policy, because when the statutory instrument went to the Lords, their spokesperson was not clear about whether the Opposition opposed the carbon border adjustment mechanism. Perhaps the shadow Minister might want to say whether that is Opposition policy.
Chris McDonald
No, the shadow Minister does not. Well, perhaps he needs to think about it a bit longer.
The shadow Minister talked about the administrative burden placed on maritime companies, which is of course something of which the Government are very conscious. He mentioned some of the information that would need to be recorded, such as port of departure, fuel use and so on. I do not know when he last spoke to somebody who actually operates a vessel, but a lot of this information is routinely recorded. Perhaps his ignorance of maritime operations is second only to his ignorance of the United Kingdom.
Andrew Bowie
As somebody who served in the Royal Navy for four years after I left school, I have full awareness of maritime operations and of the importance of our United Kingdom. I was talking about the gross unfairness of this legislation and the impact it is having on some communities around this kingdom, whether on the Isle of Wight or in Northern Ireland. The Minister has the audacity to claim that CBAM is protecting British industry, when his Government’s policies are doing more to undermine British industry than any policy of any Government in recent history. The deindustrialisation we are seeing in this country is something of which his party, which still laughably calls itself the Labour party, should be utterly ashamed. I ask him to withdraw his remark about the ignorance of maritime affairs.
Chris McDonald
I commend the hon. Gentleman for his service in the Royal Navy, and I am happy to withdraw that remark. Perhaps there was an oversight on his part in relation to that particular issue. I absolutely do withdraw that remark.
On the shadow Minister’s comment about the United Kingdom, the Isle of Man is a Crown dependency, as I am sure he knows, so it is not covered by the scheme. He mentioned the Isles of Scilly. The vessels to the Isles of Scilly are not covered by the scheme either, because they are below 5,000 gross tonnage.
The shadow Minister also mentioned the Isle of Wight, and I want to respond to the comments from the hon. Member for Isle of Wight East. I looked very carefully at the issues around the Isle of Wight before we tabled this statutory instrument, because those were a significant concern for me as well, and I am happy to offer some additional information now. I am grateful to my colleague my hon. Friend the Member for Isle of Wight West (Mr Quigley), who requested a meeting with me before this statutory instrument was laid. I was happy to have that conversation with him, and I offer that courtesy to the hon. Member for Isle of Wight East as well, if he would like to have such a meeting after this debate.
Perhaps I can in some way put the hon. Gentleman’s mind at rest. First, regarding the situation on the Isle of Wight versus the ferry operators in Scotland, one of the key considerations for us was that the population on the islands in Scotland is considerably lower than that of the Isle of Wight. There is also no competition generally between the ferry operators, but there are there are a number of routes operating to the Isle of Wight, as the hon. Gentleman will know very well. The scheme will affect only two vessels, from one operator, on the Isle of Wight: one is a diesel vessel and one is a hybrid vessel. Clearly, the impact of the scheme will be felt more on the diesel vessel than the hybrid vessel, and that is because of the 5,000 gross tonnage limit. I am sure that I am not telling the hon. Gentleman anything that he does not know, but I want to be clear that we have thought very carefully about this.
The hon. Gentleman and a number of Members mentioned the opportunity for decarbonisation. In my opening remarks, I mentioned a number of ways that that could be done, including more fuel-efficient operating practices and various other things. We have set aside £448 million of Government funding to support that, which was announced previously. If the hon. Gentleman would like to meet with me to go through more of that in detail and represent the views of his constituents, I would be happy to do that.
Joe Robertson
I welcome the offer to meet, and I wish to take the Minister up on it. As he will know, the hybrid vessel he refers to that travels across the Solent has electric capability, but it cannot be used because there is no grid capacity at Portsmouth. The Solent is one of the busiest shipping areas in Europe and the vast majority of pollution will be from large container ships going in and out of Southampton—and, of course, the Royal Navy operates out of Portsmouth. Putting any cost on a boat travelling to the Isle of Wight to allow to people to go to and from home fails to meet any sort of reasonableness test, but I thank the Minister for the offer of a meeting.
Chris McDonald
I appreciate the hon. Gentleman’s comments. Perhaps we can go through some of the assessments of the impact of cost inflation in more detail when we meet. Our modelling shows that that could largely be eaten up by normal inflation and normal operating practices, but there are decisions there for the operators to take into account. The hon. Gentleman made some pertinent points about the operators, and we can discuss those in more detail. He also mentioned international shipping through the Solent. Clearly, international shipping is not covered currently by this measure, but it is covered in the EU ETS.
Finally, I come to the points raised by the right hon. Member for East Antrim and the hon. and learned Member for North Antrim. The hon. and learned Member for North Antrim might be surprised to know that there are actually quite a number of things on which we agree, and one of them, for certain, is that the United Kingdom must be the United Kingdom of equals. I am quite clear about that.
I wanted to clear up a couple of points about the situation with Northern Ireland. The 50% reduction that applies to Northern Ireland is there to create parity between vessels that operate between Great Britain and Northern Ireland and those that operate between Great Britain and the Republic of Ireland. If we had not offered the 50% reduction, Northern Ireland would be disadvantaged in that way, and I want to be clear about why that is.
Jim Allister
The Minister is telling the Committee that parity with the Republic of Ireland is more important to him than parity with the rest of the United Kingdom. Really?
Chris McDonald
That is not what I am saying at all. I am saying that it was important to us that Northern Ireland was not in any way disadvantaged, which is why the 50% reduction was offered. The hon. and learned Member mentioned Rathlin island in his constituency; I remind him of the 5,000 gross tonnage limit and how that applies.
The hon. and learned Member, the right hon. Member for East Antrim and the shadow Minister all made a general point about the cost associated with the changes. There is a cost to not tackling climate change. If operators of vessels were spilling oil into the Solent or the Irish sea, then I am quite sure that the hon. and right hon. Members’ constituents would be clamouring for the Government to introduce regulations to do something about it. The fact that this pollution is not observable to the naked eye does not make it any less important to tackle it. These environmental regulations—and the Government’s policy on net zero—are about tackling that pollution and providing a stable and predictable regime so that industry can invest.
Sir Julian Smith (Skipton and Ripon) (Con)
Will the Minister clarify what the Northern Ireland Office’s submission in the write-round said about the impact of the measure on Northern Ireland, or give a sense of those discussions? Baroness Foster runs Intertrade UK, a committee that was designed during the Windsor framework negotiations to look at the very issue of trade. Has he had conversations with Baroness Foster? Having listened to Northern Ireland colleagues, will he look again at how this will impact the Union? On top of the Windsor framework—which I would argue was the best deal we could get—this measure is an additional burden.
Chris McDonald
I can tell the right hon. Gentleman that this measure will need the support of the Governments of all four parts of the United Kingdom.
Carla Lockhart (Upper Bann) (DUP)
Northern Ireland is and will be disadvantaged if we proceed down this track. What engagement has the Minister had with the individuals concerned, as the right hon. Member for Skipton and Ripon outlined? Will he extend the invitation he gave to the hon. Member for Isle of Wight East to the Members for Northern Ireland who feel very deeply about this and are very aggrieved, to discuss the real impact—not just the impact in his brief?
Chris McDonald
Yes, I am very happy to extend that invitation for a further meeting with any Members of the House who wish to discuss the matter. Of course, there has been extensive consultation on this statutory instrument.
Chris McDonald
I have given way multiple times, which I am sure the right hon. Gentleman will appreciate. I think it is time I brought the debate to a close.
These changes have the support of all four Governments of the United Kingdom, and consensus in advancing carbon pricing policy to include domestic maritime is key to delivering our decarbonisation goals and driving green investment across the United Kingdom. I commend the draft order to the Committee.
Question put.