The Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025

Free allocation in 2026 allocation period: type 2 2026 incumbents

7.—(1) This article applies to an installation that is a type 2 2026 incumbent.

(2) The regulator must determine, in accordance with Article 15 of the Free Allocation Regulation, the historical activity level of each sub-installation of the installation on the basis of the baseline data report and verification report submitted as part of the first stage of the Article 4 application; and for the purpose of this article, Article 15 applies as if—

(a) the only data in the reports related to the period beginning with 1st January 2023 and ending with 31st December 2023;

(b) the start of normal operation of a sub-installation whose start of normal operation is before 1st January 2023 were 1st January 2023.

(3) The regulator must calculate, in accordance with Articles 16 and 19 to 22 of, and Annex 3 to, the Free Allocation Regulation, the preliminary annual number of allowances to be allocated in respect of each sub-installation of the installation for the 2026 scheme year; and for the purpose of this article, Articles 16 and 19 to 22 and Annex 3 apply as if a reference in those provisions to—

(a) the relevant allocation period were a reference to the 2026 allocation period;

(b) the historical activity level of the sub-installation were a reference to the historical activity level of the sub-installation determined under paragraph (2);

(c) the baseline period referred to in Article 15(2) were a reference to the period beginning with 1st January 2023 and ending with 31st December 2023.

(4) The regulator must calculate the final annual number of allowances to be allocated in respect of the installation, and of each sub-installation of the installation, for the 2026 scheme year.

(5) For the purpose of paragraph (4), the final annual number of allowances to be allocated for the 2026 scheme year in respect of a sub-installation is the same as the preliminary annual number of allowances calculated under paragraph (3); but in the case of a sub-installation of an installation that is an electricity generator (as defined in Article 2c(3) of the Free Allocation Regulation), the final annual number of allowances is the preliminary annual number of allowances multiplied by 0.7462 (reduction factor for 2026 scheme year).

(6) For the purpose of paragraph (4), the final annual number of allowances to be allocated in respect of an installation for the 2026 scheme year is the sum of the final annual number of allowances to be allocated in respect of each sub-installation of the installation for the 2026 scheme year.

(7) Paragraphs (3) and (4) do not apply to a sub-installation if the regulator has not, by virtue of Article 15(2) or (7) of the Free Allocation Regulation, as applied by paragraph (2) of this article, determined the historical activity level of the sub-installation.

(8) The regulator must send the following information to the UK ETS authority as soon as reasonably practicable—

(a) details of the installation, including details of any permit in force;

(b) the information contained in the baseline data report submitted as part of the first stage of the Article 4 application;

(c) the historical activity levels (if any) of each sub-installation determined under paragraph (2), the preliminary annual number of allowances to be allocated in respect of each sub-installation calculated under paragraph (3) and the final annual number of allowances to be allocated in respect of the installation and of each sub-installation calculated under paragraph (4);

(d) where the regulator has not, by virtue of Article 15(2) of the Free Allocation Regulation, determined the historical activity level of a sub-installation, the regulator’s explanation.

(9) The UK ETS authority must, as soon as reasonably practicable—

(a) assess the documents submitted as part of the first stage of the Article 4 application and, where relevant, the regulator’s explanation under paragraph (8)(d);

(b) inform the regulator whether or not the application is valid.

(10) Where the Article 4 application is valid, the UK ETS authority must also—

(a) approve the final annual number of allowances to be allocated in respect of the installation for the 2026 scheme year, making any corrections to the historical activity levels and the preliminary and final annual number of allowances that the UK ETS authority considers appropriate;

(b) inform the regulator accordingly.

(11) Where the Article 4 application is not valid, the regulator must give notice to the operator of the installation of that fact and the reasons for it.

(12) For the purpose of the calculations referred to in this article, the number of allowances to be allocated in respect of sub-installations and installations must be expressed as the nearest integer, taking 0.5 as nearest to the previous integer.

(13) For the purpose of this article—

(a) an Article 4 application is valid if the first stage of the application is in accordance with the Free Allocation Regulation;

(b) “start of normal operation” has the meaning given in Article 2(1)(12) of the Free Allocation Regulation.