Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026

Approximate read time: 17 minutes

On 12 March 2026, the House of Lords is scheduled to debate a motion to approve a draft order:

Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026. Lord Whitehead to move that the draft order laid before the House on 13 January be approved.

Baroness Hoey (non-affiliated) has tabled the following amendment to the motion to decline to approve the order:

Baroness Hoey to move, as an amendment to the motion in the name of Lord Whitehead, to leave out all the words after “that” and insert “this House declines to approve the draft order laid before the House on 13 January because while the Scottish Islands are protected from the order, Northern Ireland, which is already marginalised from the rest of the UK through the imposition of the Windsor Framework, is denied the same protection; and because in a context where no viable fuel alternatives exist the only impact of the order will be to increase bureaucratic burdens on business and impose additional costs on those living in parts of the UK that depend on maritime transport.”

The Lords will also consider another amendment to the approval motion. This would not decline to approve the order but would record the House’s ‘regret’:

Lord Moynihan to move, as an amendment to the motion in the name of Lord Whitehead, at end to insert “but this House regrets that the draft Order will result in higher electricity and fossil fuel prices for businesses and consumers; impose onerous administrative costs on maritime businesses, weighing on the UK’s industrial competitiveness; and weakens the Union by making it more expensive to travel to and from islands in the United Kingdom and increasing the cost of sea transport for the import and export of goods between Great Britain and Northern Ireland.”

The Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026 is subject to the draft affirmative procedure.

1. What would the order do?

The Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026 would expand the UK emissions trading scheme (UK ETS) to include coverage of carbon dioxide (CO2), methane (CH4) and nitrogen dioxide (NO2) from domestic maritime activities.^[1]

The explanatory memorandum to the order states:

The intent of this instrument is to require operators of ships undertaking eligible maritime activities to obtain an “emissions monitoring plan” (to document the processes through which it will ascertain the emissions associated with the activities of its ships) and, for each scheme year, to monitor, independently verify, and report to the regulator its maritime emissions, and to surrender a level of allowances equivalent to those emissions.^[2]

The order would come into force on 1 July 2026.

1.1 What is the UK emissions trading scheme?

The UK ETS is a ‘cap and trade’ carbon pricing policy that seeks to apply a cost to activities by certain sectors such as fossil fuel power generation. The government has said this is to “better [reflect] the cost to society of the emissions they produce”. The UK ETS has been described by the Department for Energy Security and Net Zero as one of the UK’s “flagship decarbonisation policy instruments”.^[3]

The UK ETS was introduced following the UK’s withdrawal from the EU and the EU’s own emissions trading scheme. The UK ETS was established by the UK ETS Authority which comprises the UK, the Scottish and Welsh governments and the Northern Ireland Department of Agriculture, Environment and Rural Affairs.

Currently the UK ETS applies to the aviation, power and heavy industry sectors. The scheme introduces a ‘cap’ on the total amount of greenhouse gases that can be emitted by these sectors. The cap is broken down into allowances. Each allowance is equivalent to 1 tonne of CO2 equivalent greenhouse gases. Each year operators in these sectors have to surrender allowances under the scheme to cover their emissions. These allowances are acquired through auctions run by the UK ETS Authority. A number of allowances are also allocated for free to mitigate the risk of carbon leakage. The government has explained this as follows:

The UK ETS is designed to mitigate carbon leakage risks through increased free allocations to operators in sectors identified as being at risk. Carbon leakage refers to the movement of production and associated emissions from one country to another due to different levels of decarbonisation effort through carbon pricing and climate regulation undermining overall efforts to reduce global emissions. Free allowances also provide a financial incentive for companies to innovate and improve efficiency, as they can sell their excess free allocation on the secondary market to help cover their decarbonisation costs.^[4]

The UK ETS’ overall cap limits the amount of carbon that can be emitted by the sectors covered by it. The cap is reduced over time which the government has said sends “a clear signal to businesses concerning the level of long-term emissions reductions they will need to deliver”.^[5] The government has also argued the scheme provides clarity to businesses and investors to help them make decisions about when to invest in decarbonisation.

1.2 Why is the government extending the scheme to domestic maritime activities?

The explanatory memorandum to the draft Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026 states that expanding the UK ETS is part of the government’s strategy of decarbonising all sectors of the UK economy in order to meet its 2050 net zero target.^[6] The UK ETA Authority has said that expanding the UK ETS to the maritime sector could remove a barrier to decarbonisation:

In the Developing the UK ETS consultation, we consulted on expanding the UK ETS to include emissions from domestic maritime. This followed a commitment to explore expanding carbon pricing in the government response to the ‘Future of UK Carbon Pricing’, and also a commitment to exploring expanding the UK ETS to uncovered sectors in the UK government’s Net Zero Strategy.

We outlined that UK ETS inclusion could overcome a key barrier to decarbonising the sector, which is that the prices of maritime fuels do not currently reflect their environmental costs. UK ETS inclusion could strengthen the incentive to adopt low carbon fuels, and support deployment of fuel-efficient technologies and the introduction of more efficient operating practices.^[7]

During consideration of the order in a House of Commons delegated legislation committee on 3 February 2026, the parliamentary under secretary of state for energy security and net zero, Chris McDonald, said the government expected the order to help “overcome key barriers to maritime decarbonisation by incentivising low-carbon fuels, fuel-efficient technologies and fuel-efficient operating practices”.^[8]

The UK ETA Authority has consulted on expanding the UK ETS to new sectors, including domestic maritime activities.^[9] A technical consultation has also been conducted on expanding the UK ETS to the maritime sector.^[10]

The explanatory memorandum for the order provides an assessment of the financial implications of the measures:

The policy is expected to deliver a net reduction of approximately 645,000 tonnes of carbon dioxide equivalent (CO2e) accounting impacts in the domestic maritime sector over the entire appraisal period, and the rest of the UK ETS market in phase I. These reductions are driven by operators responding to the carbon price signal through investment in cleaner technologies and behavioural changes. The social value of these greenhouse gas emission savings is estimated at £155mn over the appraisal period (2026–2046) (discounted to 2026 base year, expressed in 2024 prices). Furthermore, scope expansion of the UK ETS is expected to lead to air quality benefits by reducing the air pollutant emissions from UK domestic maritime. Using a damage costs approach, the value of these benefits is estimated at £179mn over the appraisal period (discounted to 2026 base year, expressed in 2024 prices).

The impact on business, charities or voluntary bodies is mainly concentrated within the domestic maritime sector. Operators in scope will face new compliance and abatement costs, primarily through the purchasing of emissions allowances and administrative requirements. The total cost of investing to abate emissions, driven by UK ETS scope expansion to domestic maritime, is estimated at £22mn, with an additional £179mn in administrative costs over the appraisal period (2026–2046). The cost of purchasing allowances across all UK ETS operators is projected to increase by £1,900mn, reflecting a financial transfer to government rather than a net cost to society. The total cost burden, including purchasing of allowances, to UK businesses is estimated at £85mn over the appraisal period, as the majority of domestic maritime operators are non-UK entities. Overall, the policy delivers proportionate emissions reductions at low cost to operators, maintains market stability and supports the UK’s net zero strategy.^[11]

1.3 How will the order apply to Northern Ireland?

The order extends and applies to the whole of the UK. However, it introduces the concept of “surrender deductions” for voyages between Great Britain and Northern Ireland. The government’s impact assessment for the expansion of the UK ETS explains this as follows:

The expansion of the UK ETS to include domestic maritime emissions raises a specific challenge in relation to voyages between Great Britain (GB) and Northern Ireland (NI). Under the EU ETS, 50% of emissions from international voyages, such as those between the Republic of Ireland (RoI) and GB, are covered. If the UK were to treat GB–NI voyages as standard domestic journeys, and therefore 100% in scope, this would result in a higher effective carbon price on GB–NI routes compared to RoI–GB routes.

This asymmetry could create a distortion in carbon pricing across the Irish Sea, potentially undermining fair competition between operators and routes. It could also lead to perverse incentives in route planning and, in line with article 2(1) of the Northern Ireland Protocol and the European Union (Withdrawal Agreement) Act 2020, the UK government is committed to ensuring that post Brexit- policy development does not result in a diminution of rights, safeguards, or equality of opportunity for Northern Ireland.^[12]

The impact assessment explains that the measure is subject to review should the EU ETS coverage change or if the UK ETS was expanded to include international voyages.^[13]

The impact assessment also examined the expected impact on households, which it said was uncertain but anticipated to be small:

The exact impact on households is uncertain; however, it is expected to be small based on emerging evidence from the EU ETS and related research. This research shows that even with full cost pass-through, the effect on final consumer prices is estimated to be minimal, typically less than 1% for most goods, and up to 2% for heavy, low-value commodities. The proportion of domestic maritime freight in the UK is low compared to other modes of freight, further limiting the risk of significant price increases for households.^[14]

However, the government said a relatively higher impact may be faced by Northern Ireland:

A relatively higher exposure to these impacts may be faced by consumers in Northern Ireland, who rely more heavily on domestic maritime freight transport than other UK consumers, but impacts are still expected to be small, with the 50% surrender deduction for NI-GB routes to ensure parity of emissions covered on journeys from GB to the island of Ireland, across the Irish Sea, further reducing this risk. No significant behavioural changes or adverse impacts on vulnerable groups are expected.^[15]

1.4 How will the order apply to Scottish islands?

There are several exemptions from the scope of the order. The explanatory memorandum to the order explains that it would apply to ships of 5,000 gross tonnage and above. Other exemptions would apply as well, including for “government ships (including military and law enforcement ships), fish-catching and fish-processing ships, and ferries operating services to Scottish islands and remote peninsulas”.^[16]

The House of Lords Secondary Legislation Scrutiny Committee has asked the Department for Energy Security and Net Zero about the decision to exempt ferries operating services to Scottish islands from the UK ETS but not other ferry services, such as those serving the Isle of Wight. It reported the department’s response as follows:

There is a high bar for any exemptions from the UK ETS. A uniform carbon price applied consistently, without multiple carve-outs, ensures that emissions reductions are delivered at the lowest overall economic cost, investment signals are consistent, and market distortions are minimised. Exemptions undermine these benefits. We are exempting ferries serving island and peninsula communities in Scotland on the basis of the unique and pressing challenges faced by these communities, which have small populations ranging from fewer than 10 to around 21,000 inhabitants, with only four of which having a population of over 10,000. Each of these communities is reliant on ferries for access to essential goods, healthcare, education, and employment. Any disruption or additional burden placed upon these ferry services risks undermining the social and economic viability of these island and peninsula communities. Such impacts can contribute to further population decline and reduced resilience in areas already facing demographic and geographic challenges. This is in addition to the legal duties to consider island populations under the Islands (Scotland) Act 2018 [an act of the Scottish Parliament]. Any potential impacts of the UK ETS on other UK islands will be considered in a review of the regime in 2028.^[17]

2. Scrutiny of the order in the House of Commons

The order was debated in a Commons delegated legislation committee on 3 February 2026.^[18] The House of Commons approved the Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026 on 11 February 2026 by 362 votes to 107 in a deferred division.^[19]

Members representing Northern Ireland constituencies spoke during the committee debate. Sammy Wilson (Democratic Unionist Party MP for East Antrim) argued the measures in the order would have a disproportionate cost in Northern Ireland. This was because Northern Ireland relied on exports and imports to and from Great Britain.^[20] He argued these costs would be on top of what Northern Ireland “already experiences as a result of the protocol and the Windsor framework, which has already added significantly to the cost of bringing goods in from GB and taking goods from Northern Ireland to GB”. He also argued that operators could not change their behaviour because there was no alternative to sea transport and alternative fuel sources were expensive:

Given the nature of sea transport and its importance for transport between Northern Ireland and GB, as well as the lack of alternatives, this policy cannot lead to transport providers changing how they behave. They cannot go for alternative fuels; near-net zero fuels would simply price them out of the market because they are four to five times dearer than the fuels they use. They cannot opt for the electrification of ships; first of all, it is quite expensive, and secondly, the port infrastructure facilities are not even available.^[21]

He said the order lacked provisions to reinvest funds in supporting operators to transition to other fuel sources:

There is nothing in this order about making money available for retrofitting, fuel experimentation and development, or putting power facilities on port sites to enable ships to use an alternative means of propulsion.^[22]

Mr Wilson argued that the policy would therefore not reduce emissions and described the order as “simply a tax”.

Jim Allister (Traditional Unionist Voice MP for Northern Ireland) argued that Northern Ireland being in scope of the order but Scottish islands being exempt was unfair.^[23] He argued the costs of the order would be passed on to his constituents via goods they buy. Mr Allister also expressed similar concerns to Sammy Wilson about the costs of alternative fuels and support for the industry by the government. He described the policy as a carbon tax.

Shadow minister for energy security and net zero, Andrew Bowie, argued that the increasing cost on industry per tonne of greenhouse gases emitted was a burden on the UK’s industrial competitiveness.^[24] He said that should the Conservative Party form the next government it would therefore repeal the UK ETS framework. Mr Bowie argued that decarbonisation in the maritime sector was a laudable aim but would not have an impact on global emissions because the US, China, India and other countries “have no plans to curb their emissions in the maritime sector”. He argued that expanding the UK ETS was not a mechanism to decarbonise but was a “pernicious tax being levied on one of our most successful industries”. Mr Bowie argued the measures would place a burden on the UK shipping industry.

Responding to the debate for the government, Chris McDonald argued that decarbonisation could be achieved through more fuel-efficient operating practices.^[25] In his opening remarks he had also said the government expected the order to incentivise low-carbon fuels and fuel-efficient technologies.^[26] Mr McDonald said the government would provide £448mn of funding to support this.^[27] He also argued there was a cost to not tackling climate change and this policy, and the government’s wider net zero policies, were about tackling pollution and “providing a stable and predictable regime so that industry can invest”.^[28] He also stated that the changes had the support of all four governments in the UK.^[29]

3. Scrutiny of the order in the devolved legislatures

The order would be made in exercise of the powers conferred by sections 44, 54 and 90(3) of, and schedule 2 and paragraph 9 of schedule 3 to, the Climate Change Act 2008. The draft order sets out that paragraph 11 of schedule 3 of the act requires the order to be approved by resolution of each House of Parliament, the Northern Ireland Assembly, the Scottish Parliament and the Welsh Parliament/Senedd Cymru.

The order was agreed by the Scottish Parliament on 18 February 2026.^[30] The Welsh Parliament/Senedd Cymru approved the order on 10 February 2026.^[31] The Northern Ireland Assembly is scheduled to consider a motion to approve the order on 10 March 2026.^[32]

4. Read more

• Department for Transport, ‘Maritime decarbonisation strategy’, 25 March 2025
• House of Lords Secondary Legislation Scrutiny Committee, ‘49th report of session 2024–26’, 29 January 2026, HL Paper 255 of session 2024–26
• UK Chamber of Shipping, ‘UK shipping industry urges course correction on UK ETS expansion’, 12 February 2026; and ‘Parliamentary briefing: UK emissions trading scheme’, accessed 6 March 2026
• House of Commons, ‘Written question: UK emissions trading scheme: Shipping (UIN 109207)’, 3 February 2026
• House of Commons, ‘Written question: Shipping: UK emissions trading scheme (UIN 113910)’, 2 March 2026
• House of Commons, ‘Written question: UK emissions trading scheme: Shipping (UIN 113909)’, 2 March 2026