Splash247: UK shipping warns ETS extension risks backfiring

The UK shipping industry has stepped up its criticism of government plans to extend the UK Emissions Trading Scheme (UK ETS) to domestic maritime from July 1, 2026, warning that the policy could raise costs, hit island communities and undermine competitiveness without delivering meaningful emissions cuts.

The Draft Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026 was passed in the Commons on February 11, following what industry groups described as limited parliamentary scrutiny.

From July, vessels of 5,000 gt and above operating on domestic voyages between UK ports will be required to monitor, report and surrender allowances for 100% of their carbon dioxide, methane and nitrous oxide emissions, including those generated in port. Offshore vessels will be brought into scope from 2027.

The UK Chamber of Shipping said the sector supports the country’s climate goals but questioned the timing and structure of the rollout.

Industry representatives argue that alternative fuels remain four to five times more expensive than conventional marine fuels and that most UK ports lack the shore power and grid capacity needed to support low-carbon operations. Without reinvestment of ETS revenues into maritime decarbonisation, they say, the scheme risks becoming a cost burden rather than a transition tool.

Particular concern centres on ferry-dependent and island communities, where operators may have limited ability to absorb additional costs. While certain Scottish island routes benefit from protections under the EU ETS, equivalent safeguards have not yet been confirmed under the UK framework.

Under the scheme’s structure, the first reporting period will run from 1 July to 31 December 2026, with verified emissions reports due by 31 March 2027. A one-off “double surrender” concession will allow operators to submit 2026 and 2027 allowances together by 30 April 2028.

Responsibility for compliance will sit with the registered owner, unless formally delegated to another ISM-responsible entity such as a bareboat charterer or manager. Failure to surrender sufficient allowances will trigger a penalty of £100 per tonne of CO₂ equivalent, indexed for inflation, in addition to the requirement to make up the shortfall.

The Chamber is calling for ETS revenues generated from shipping to be ringfenced for shore power, grid upgrades, vessel retrofits and clean fuel development. It has also urged alignment with the EU ETS to avoid double charging and carbon leakage, as well as a phased or “monitor-only” period to give operators and ports more time to prepare.

With regulations published in mid-January and entry into force scheduled just six months later, shipowners say they face a compressed timeline to finalise monitoring plans, appoint verifiers and upgrade reporting systems.

The UK ETS, introduced in 2021 after Brexit, mirrors many elements of the EU system and operates on a cap-and-trade basis. The government has already confirmed it will run into a second phase from 2031 to 2040.

For now, the industry says it stands ready to work with ministers — but wants what it calls a workable pathway that cuts emissions without weakening essential UK connectivity.