The Government set out its intention to continue the UK Emissions Trading Scheme (ETS) up until 2050, when it published its Long-term pathway for the UK Emissions Trading Scheme in 2023. In February 2025, the UK ETS Authority consulted on extending the scheme beyond Phase I, which is set to end on 31 December 2030. The Authority is minded to legislate for a Phase II of the scheme, that would continue the operation of the UK ETS from 1 January 2031.

 

In our sector, we can point to significant emission reductions since the start of the UK scheme in 2021. Chemical sector emissions have decreased 36% between the 2021 and 2023 reporting years.[1] Disappointingly, none of this emission reduction was as a result of switching away from the use of natural gas for heat (i.e. to electricity, biomass or hydrogen); rather it was as a result mainly of closure, and then of decreased activity levels. These figures do not account for more recent closures in regions much in need of investment, in Scotland and on the Humber.

This reduced production signals a decrease in the UK’s industrial competitiveness, owing to the high cost of energy and climate-related policy. Global demand for chemical products is increasing and declining UK production has been replaced in the global market by production from elsewhere. In our sector, that is typically the US, Middle East, Russia and China. Europe is suffering the same competitiveness issues as the UK.

When considering the extension of the UK ETS, we urge the Government to first evaluate the emission reductions affected by the scheme, at a sector level, to establish the case for extending the scheme to all current participants. If it can be shown to be effective at decarbonising and not deindustrialising a sector, then an extension should be pursued.

We are concerned that a business-as-usual approach to UK ETS extension, applied across manufacturing sectors, will only continue to shutter the UK’s foundation industries. These industries provide the materials used throughout the manufacturing supply chain, and in products across the economy. If we do not make them here then we will import them. Defra figures show that, between 1996 and 2022, emissions related to UK production reduced from 407 to 211MTe, while emissions related to imports increased from 259 to 404MTe.[2]

Chemical manufacturing processes are energy intensive but need not be emission intensive. Our sites can decarbonise if we create the right investment conditions for green production here in the UK, namely access to clean and competitively priced energy, together with policy that allows a clean manufacturer to pass through its green premium to the consumer.

The UK should proceed with an extension of the UK ETS if it can be shown that it has been effective in decarbonising industry. The test is whether it has encouraged and permitted manufacturers to switch away from the combustion of natural gas for heat, and in which sectors this has been successful. If it is shown that the UK ETS has not delivered for certain sectors then the reasons must be found out, and other approaches must be considered.

Reaching net zero is of fundamental importance. Supporting the decarbonisation of industry at home, would not just set an example to the world, it would also retain UK jobs, manufacturing capability and revenue for the exchequer. The alternative is the continued offshoring of production, with the consequent importing of emissions, which will do nothing to reduce climate change – the stated aim of UK ETS.

 

[1] ETS emissions data, published by DESNZ in April 2025

[2] UK and England’s carbon footprint to 2022, published by Defra in May 2025