After Brexit, the UK Government intends to establish a UK Emissions Trading System ("UK ETS") as a key part of the plan to achieve the net zero target. Background At present, the UK participates in the EU Emissions Trading System ("EU ETS"). This is a cap and trade system which is designed to incentivise individual installations to reduce their greenhouse gas emissions year on year, by setting ever reducing caps on the emissions which each installation is permitted to emit in a given year. Each installation is required to surrender allowances in respect of its measured emissions in the relevant year. Historically many allowances were given to installations for free, but increasingly such allowances must be purchased. Installations which reduce their emissions below the cap will have excess allowances which they are able to sell, providing a further incentive to reduce emissions. The EU ETS is seen as a key part of EU legislation driving reductions in greenhouse gas emissions from the power sector, industry and flights within the EU. Read more