Extending the UK Emissions Trading Scheme to heating and road transport fuels:

The report is structured as follows: • Section 2 introduces the purpose of the report and describes the policy context in which the UK ETS and carbon pricing2 sit within the broader policy mix. [...] The UK ETS Authority has aligned the cap with Net Zero so that In 2023, the UK government confirmed3 that it would be it is consistent with the UK taking a series of steps to increase the role that the UK ETS government’s plans to enable has in enabling the UK to achieve its Carbon Budgets and Carbon Budget Four to be met, and will also assist in enabling Net Zero. [...] Much of the work is already underway, with the government publishing an updated position in December 2023 regarding the long-term pathway for the UK ETS.6 This confirmed the intention to continue the UK ETS beyond 2030 to 2050, giving businesses the long-term clarity they need to invest in decarbonisation. [...] This is a function of a feature of the model in which government spending is assumed to spark economic activity because the recipients of the redistributed revenue will spend the money on goods and services – which is known as the ‘fiscal multiplier effect’. [...] Placing the obligation at the beginning of the supply chain could influence behaviour further down the distribution chain (but the strength of the investment signal may weaken by the time it reaches energy retailers and consumers) and would be greatest on producers, importers, and shippers.