Policy Update: Government Response to the Consultation on Amendments to the UK Emissions Trading Scheme (ETS)

On 30 January, the UK ETS Authority issued a response to its consultation regarding amendments to the UK ETS. techUK responded to the consultation on behalf of its members in October 2024.

Key Takeaways:

The UK ETS Authority will be moving forward with its proposed amendment as consulted to allow operators who began operations between 2 January 2021 and 1 January 2024 to apply for ultra-small emitters (USE) status for the 2026-30 period.

The Authority expects the legislation to come into force on 31 March 2025 to allow operators who began operations between 2 January 2021 and 1 January 2024 to apply for USE status for the 2026-30 period during the 1 April to 30 June 2025 application window.

techUK welcomes Proposal 3. Unfortunately, the Authority did not take action on additional concerns raised by techUK members, including a more flexible application period and a broader reconsideration of the sector’s inclusion in the UK ETS.

Further Reading:

The initial consultation proposed the revision of eligibility criteria to obtain the ultra-small emitters (USE) status, which allows operators in scope of the UK ETS (those with an installed capacity exceeding 20MWth) that emit less than 2,500 tCO2e annually to reduce both their costs and administrative obligations by opting out of the full UK ETS scheme. Many data centres fall under the USE category, with most existing sites having successfully applied during the previous window in 2019/20. However, operators who opened new data centres after 2020 or received their GHG permits post-2020 were not eligible, as they were not operational at the time. The upcoming application window for the next phase (2026-2030) is scheduled from 1 April to 30 June 2025, but current guidance only permits applications from installations that were operational before 1 January 2021, excluding newer facilities from benefiting from this opt-out. Proposal 3 in the consultation will extend this eligibility date to include operators who commenced regulated activities by 1 January 2024.

In its 2024 response, techUK welcomed Proposal 3, but also raised concerns about the lengthy application process for the USE status. Under the current UK ETS rules, operators must comply with the scheme for at least three consecutive years to accumulate verified emissions data before they can apply. Furthermore, the application windows only open every five years, meaning that data centres might have to wait up to 10 years before being accepted, placing a prolonged administrative and financial burden on operators.

While Proposal 3 suggests shortening the required data verification period to one year, techUK noted that even with this amendment, some operators may still face over six years of full ETS compliance before qualifying for the exemption. This is particularly burdensome for new data centres, which must navigate this process without prior emissions data.

Given the mismatch between the scheme’s design and the data centre industry’s operational realities, techUK made a wider call for reforms to the UK ETS.

Data centres are primarily reliant on electricity rather than fuel combustion, and their backup generators which fall under the UK ETS are rarely used. Therefore, their inclusion yields minimal environmental benefits but imposes significant financial and administrative burdens, as compliance costs often outweigh the cost of emissions allowances.

techUK recommended that the government reconsider the inclusion of data centres in the UK ETS, using Germany’s approach as a model. In Germany, data centres are excluded from the emissions trading scheme because it has been recognised that their backup generators are rarely in operation. We argued that adopting a similar exemption in the UK would reduce unnecessary red tape, allowing data centre operators to focus resources on more impactful initiatives that contribute meaningfully to environmental goals.

Data Centres Programme activities

techUK provides a collective voice for UK Data Centre operators working with government to improve the business environment for our members. We keep members up to date with the key technical and regulatory developments that may impact growth and on funding opportunities that may increase commercial competitiveness. Visit the programme page here.