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

PART 4 Free Allocation Regulation amended

Free Allocation Regulation amended

33.  Commission Delegated Regulation (EU) 2019/331 is amended in accordance with this Part.

Article 2 amended (definitions)

34.—(1) Article 2 is amended as follows.

(2) In paragraph 1—

(a) in point (1) (definition of “incumbent installation”) for “2026-2030” substitute “2027-2030”;

(b) in point (14)(b) (definition of “baseline period”) for “2026-2030” substitute “2027-2030”;

(c) after point (25) insert—

“(26) “first stage” and “second stage”, in relation to an application under Article 4 for free allocation in the 2027-2030 allocation period, must be construed in accordance with that Article.”.

(3) After paragraph 3 insert—

“4.   References in this Regulation to benchmarks for an allocation period are references to the benchmarks for the allocation period set out in Annex 8; but if no benchmarks for the 2027-2030 allocation period are set out in Annex 8 before the regulator is required to calculate the preliminary annual number of allowances to be allocated for scheme years in that period, the benchmarks for the 2021-2025 allocation period and the 2026 allocation period are to be used for the calculation.”.

Article 2a amended (eligibility for free allocation)

35.—(1) Article 2a is amended as follows.

(2) In paragraph 2(a)(i) for “2026-2030” substitute “2027-2030”.

(3) In paragraph 3—

(a) after “in relation to measurable heat” insert “, or the first stage of such an application under Article 4 may be completed,”;

(b) after “date of the application” insert “, or of the completion of the first stage,”.

(4) In paragraph 4 after “in relation to measurable heat” insert “or where the first stage of such an application under Article 4 is completed”.

(5) In paragraph 5—

(a) in the words before point (a) for “and Articles 3a to 6a of the Activity Level Changes Regulation” substitute “, Articles 3a to 6a of the Activity Level Changes Regulation and Part 2 of the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025”;

(b) in point (a) after “start of normal operation of the sub-installation” insert “, or in a case where the installation includes the heat benchmark sub-installation at the date of completion of the first stage of an application under Article 4”.

Article 2b amended (free allocation in 2026 and 2027-2030 allocation periods: applications by incumbent installations that will not produce electricity for sale for consumption outside the installation)

36.—(1) Article 2b is amended as follows.

(2) In the heading for “2026-2030 allocation period” substitute “2026 and 2027-2030 allocation periods”.

(3) In paragraph 1—

(a) for “2026-2030” substitute “2027-2030”;

(b) for “the application is” substitute “the documents submitted as part of the first stage of the application are”.

(4) In paragraph 2 after “the date of” insert “the submission of documents as part of the first stage of”.

(5) In paragraph 3—

(a) in the words before point (a) for “such an application is” substitute “the documents submitted as part of the first stage of such an application are”;

(b) in point (a) after “Article 15a(4)” insert “or, where relevant, under article 7(8) of the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025 for assessment under article 7(9) of that Order”.

(6) In paragraph 4(a)—

(a) for “2026-2030” substitute “2027-2030”;

(b) after “Article 15a(4)” insert “or, in the case of a type 2 2026 incumbent (as defined in Part 2 of the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025), under article 7(9) of that Order”.

(7) In paragraph 5—

(a) in point (a) after “Activity Level Changes Regulation” insert “or, in the case of a type 2 2026 incumbent, Part 2 of the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025”;

(b) in point (b)—

(i) for “2026-2030” substitute “2026 allocation period and the 2027-2030”;

(ii) for “and the Activity Level Changes Regulation” substitute “, the Activity Level Changes Regulation and Part 2 of the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025”.

(8) In paragraph 6(a) for “2026-2030” substitute “2026 allocation period and the 2027-2030”.

(9) In paragraph 10(a) after “the date of” insert “the submission of documents as part of the first stage of”.

Article 2c amended (meaning of “electricity generator” and “relevant CHP electricity”)

37.—(1) Article 2c is amended as follows.

(2) In paragraph 3 in the words before point (a) for “2026-2030 allocation period” substitute “2026 allocation period or the 2027-2030 allocation period”.

Article 4 amended (application for free allocation in 2027-2030 allocation period by operators of incumbent installations)

38.—(1) Article 4 is amended as follows.

(2) In the heading for “2026-2030” substitute “2027-2030”.

(3) In paragraph 1 in the words before point (a) for “2026-2030” substitute “2027-2030”.

(4) For paragraph 1A substitute—

“1a.   An application consists of 2 stages to be completed, as follows:

(a) the first stage is that in the period beginning with 1 April 2025 and ending with 30 June 2025, the operator must submit the documents referred to in paragraph 2 to the regulator;

(b) the second stage is that in the period beginning with 1 April 2026 and ending with 30 June 2026, the operator must:

(i) notify the regulator in writing that the operator wishes the application to proceed; and

(ii) where relevant, resubmit the documents referred to in paragraph 2 with any amendments necessary to take account of any changes to free allocation rules for the 2027-2030 allocation period made after 31 March 2025 (for example, changes to the list of sectors and subsectors set out in the Annex to Commission Delegated Decision (EU) 2019/708).

1b.   In the case of an operator of an installation included in the hospital and small emitter list for 2026-2030 or the ultra-small emitter list for 2026-2030, a notification under paragraph 1a(b)(i) that the operator wishes the application to proceed must also state whether the operator:

(a) does not wish the installation to be a hospital or small emitter or an ultra-small emitter for the scheme years in the 2027-2030 allocation period (see paragraph 23B of Schedule 7, and paragraph 7A of Schedule 8, to the UK ETS Order(1)); or

(b) wishes the application to proceed for the purpose of Schedule 8A to the UK ETS Order only (free allocation for former hospital or small emitters and ultra-small emitters).”.

(5) In paragraph 2 in the words before point (a) for “An application for free allocation submitted pursuant to paragraph 1 shall be accompanied by the following particulars” substitute “The documents to be submitted are”.

(6) In paragraph 4 omit “allocation” in both places.

(7) After paragraph 4 insert—

“5.   Unless both the first and second stages of an application are completed, the application must be treated as never having been made.

6.   Despite paragraph 5, Articles 15 and 15a apply in relation to an application as follows:

(a) Articles 15 and 15a(2) and (3) apply after the first stage is completed; and for the purpose of those provisions, an “application” is an application in respect of which the first, but not the second, stage is completed;

(b) Article 15a(4) and (5) apply after both stages are completed; and for the purpose of those provisions, an “application” is an application in respect of which both stages are completed.

7.   Where, as part of the second stage under paragraph 1a(b)(ii), the operator resubmits the documents referred to in paragraph 2:

(a) Articles 15 and 15a(2) and (3) apply again in relation to the application, with the following modifications:

(i) any reference to baseline data reports and verification reports must be read as a reference to the resubmitted documents;

(ii) any reference in Article 15a to historical activity levels must be read as a reference to any historical activity levels redetermined under Article 15 as so applied;

(iii) Article 15a(2)(b) applies as if for “30 September 2025” there were substituted “30 September 2026”;

(b) for the purpose of paragraph 6(b), Article 15a(4) and (5) apply in relation to the application taking account of the resubmitted documents.

8.   The regulator must notify the UK ETS authority of every notification under paragraph 1a(b)(i) and every case where no such notification is received.”.

Article 5 amended (application for free allocation by new entrants)

39.—(1) Article 5 is amended as follows.

(2) In paragraph 1(b) for “2026-2030” substitute “2026 allocation period and the 2027-2030”.

Article 8 amended (content and submission of the monitoring methodology plan)

40.—(1) Article 8 is amended as follows.

(2) For paragraph 7(a) substitute—

“(a) where the monitoring methodology plan is submitted as part of the first stage of an application for free allocation in the 2027-2030 allocation period under Article 4:

(i) in the case of a type 2 2026 incumbent (as defined in Part 2 of the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025), on or before 31 December 2025;

(ii) in any other case, on or before 31 December 2026.”.

Article 15a amended (assessment of applications for free allocation by operators of incumbent installations)

41.—(1) Article 15a is amended as follows.

(2) In paragraph 1—

(a) in the words before point (a) omit “where”;

(b) in point (a) before “a deemed application” insert “where”;

(c) for point (b) substitute—

“(b) in a case where the first and second stages of an application under Article 4 for free allocation in the 2027-2030 allocation period have been completed by the operator of an incumbent installation, as set out in paragraphs 6 and 7 of that Article.”.

Article 16 amended (preliminary allocation at installation level for incumbent installations)

42.—(1) Article 16 is amended as follows.

(2) In paragraph 1(b) for “2026-2030” in both places substitute “2027-2030”.

(3) In paragraph 5 in the second subparagraph for “2026-2030” substitute “2027-2030”.

(4) In paragraph 10 omit the words from “after benchmarks for the 2026-2030 allocation period” to the end.

(5) For paragraph 12 substitute—

“12.   In this Article and in Articles 19 to 22, as those Articles apply for the purpose of this Article, “relevant allocation period” means:

(a) in the case of a deemed application for free allocation in the 2021-2025 allocation period, the 2021-2025 allocation period;

(b) in the case of an application under Article 4 for free allocation in the 2027-2030 allocation period, the 2027-2030 allocation period.”.

Article 16a amended (cross-sectoral correction factors)

43.—(1) Article 16a is amended as follows.

(2) In paragraph 1 in the words before point (a) after “allocation period” insert “other than the 2026 allocation period”.

(3) In paragraph 5 in the words before point (a) after “allocation period” insert “other than the 2026 allocation period”.

(4) After paragraph 6 and table A insert—

“6a.   But where the industry cap for the 2026 scheme year exceeds the total final annual number of allowances approved under Part 2 of the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025 to be allocated for the 2026 scheme year in respect of all 2026 incumbents (as defined in Part 2 of that Order), the industry cap for the 2027 scheme year must be treated as being increased by the difference.”.

(5) For paragraph 7(b) substitute—

“(b) an application for free allocation in the 2027-2030 allocation period is made in respect of the installation under Article 4 and the installation is included in the hospital and small emitter list for 2026-2030 or the ultra-small emitter list for 2026-2030 unless, as part of the second stage of the application under Article 4(1a)(b)(i):

(i) the operator of the installation notifies the regulator on or before 30 June 2026 that the operator wishes the application to proceed because the operator does not wish the installation to be a hospital or small emitter or an ultra-small emitter for the scheme years in the 2027-2030 allocation period; and

(ii) the UK ETS authority informs the regulator under Article 15a(4) that the application is valid.”.

(6) In paragraph 8 for “2026-2030 allocation period” substitute “2027-2030 allocation period”.

Article 16b (final allocation at installation level for incumbent installations)

44.—(1) Article 16b is amended as follows.

(2) In paragraph 1(a)(ii) for “2026-2030” in both places substitute “2027-2030”.

Article 18 amended (preliminary allocation to new entrants)

45.—(1) Article 18 is amended as follows.

(2) In paragraph 1(a)—

(a) for “relevant period multiplied” substitute “relevant allocation period multiplied”;

(b) omit “and in this point “benchmark for the relevant period” means the benchmark for the relevant allocation period (as defined in Article 16(12)) set out in Annex 8”.

(3) In paragraph 7—

(a) in the words before point (a) omit “(except as provided in paragraph 1(a))”;

(b) in point (b) for “2026-2030 allocation period” substitute “2027-2030 allocation period or, where the start of normal operation of a new entrant is before 1st January 2027, a period consisting of the 2026 allocation period and the 2027-2030 allocation period”.

(4) After paragraph 7 insert—

“8.   But in paragraph 1(a) of this Article and in Articles 19 to 22, as those Articles apply for the purpose of this Article, “relevant allocation period” means the allocation period containing the scheme year for which the preliminary annual number of allowances is to be calculated.”.

Article 24 amended (renunciation of free allocation of allowances)

46.—(1) Article 24 is amended as follows.

(2) For paragraph 2 substitute—

“2.   Where an installation is an FA installation for the 2026 and 2027-2030 allocation periods, the operator of the installation may by giving notice (a “renunciation notice”) to the regulator on or after 1st January 2027 renounce free allocation in respect of the remaining scheme years of the 2027-2030 allocation period beginning with the scheme year after the year in which the notice is given.”.

Article 25 amended (mergers and splits)

47.—(1) Article 25 is amended as follows.

(2) For paragraph 9(b) substitute—

“(b) where the final annual number of allowances to be allocated in respect of a new installation:

(i) for each scheme year in the 2021-2025 allocation period beginning with the first recalculated scheme year is zero, that the installation is not an FA installation for the 2021-2025 allocation period;

(ii) for the 2026 scheme year is zero, or for each scheme year in the 2027-2030 allocation period beginning with the first recalculated scheme year is zero, that the installation is not an FA installation for the 2026 and 2027-2030 allocation periods.”.

(3) In paragraph 10—

(a) for point (a)(ii) substitute—

“(ii) where any installation before the split or merger is an FA installation for the 2026 and 2027-2030 allocation periods:

(aa) with an entry in the allocation table for the 2026 allocation period, the 2026 allocation period;

(bb) with an entry in the allocation table for the 2027-2030 allocation period, the 2027-2030 allocation period;”;

(b) after point (d) insert—

“(e) “incumbent installation” means:

(i) if the transfer date is before 31 March 2026, an installation in respect of which a deemed application for free allocation in the 2021-2025 allocation period is made;

(ii) if the transfer date is on or after 31 March 2026, an installation in respect of which an application under Article 4 for free allocation in the 2027-2030 allocation period is made.”.

(4) After paragraph 10 insert—

“11.   This paragraph applies, in the case of a merger, where:

(a) the transfer date is after the date on which the allocation table for the 2026 allocation period is published but before 31 March 2026; and

(b) the installations before the merger include a type 1 2026 incumbent (as defined in Part 2 of the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2025) and a type 2 2026 incumbent (as defined in that Part).

12.   Where paragraph 11 applies:

(a) this Article applies as if:

(i) a reference to the first relevant calendar year were a reference to 2024;

(ii) a reference to the first recalculated scheme year were a reference to the 2027 scheme year;

(b) the operator of the new installation must comply with the obligation in Article 3 of the Activity Level Changes Regulation to report on activity levels in 2025 as if the merger had not taken place;

(c) paragraph 12 of Schedule 5A to the UK ETS Order applies as if in sub-paragraph (8) “and the transfer date (as defined in paragraph 9(6) of Schedule 6 to this Order) is on or after 31st March in a scheme year” were omitted.”.

Annex 7 amended (data monitoring methods)

48.—(1) Annex 7 is amended as follows.

Section 4 amended (selection of determination methodologies and data sources representing highest achievable accuracy)

(2) In section 4.2 (unreasonable costs) in the third paragraph in point (f) for “2026-2030” substitute “2027-2030”.

Annex 8 amended (benchmarks)

49.—(1) Annex 8 is amended as follows.

(2) In the table headings and column headings after “2021-2025 allocation period” in each place insert “and 2026 allocation period”.

(3) After table C omit the words from “Where no benchmarks” to the end.

(1)

Article 2(1)(23) of the Free Allocation Regulation defines “UK ETS Order” as the Greenhouse Gas Emissions Trading Scheme Order 2020.