Carbon Tax Calculator

The UK ETS replaced the UK's participation in the EU ETS after Brexit. It is a cap-and-trade system covering energy generation, heavy industry, and aviation. Companies must hold allowances for each tonne of CO2 they emit. The cap reduces annually, driving decarbonisation. Allowance prices fluctuate but have been around £40-£70 per tonne in 2025.

UK ETS allowance prices have been £40-£70 per tonne CO2 in recent years. The UK Carbon Border Adjustment Mechanism (CBAM), launching in 2027, will apply a carbon price to imported goods. Voluntary carbon offsets cost £10-£30 per tonne for nature-based solutions and £50-£200+ per tonne for technology-based removal.

The UK ETS covers: electricity generators, oil refineries, steel, cement, glass, ceramics, pulp and paper, chemicals, and aviation within the UK. Installations with rated thermal input above 20MW are included. Smaller emitters may be covered by the UK ETS Small Emitter and Hospital Opt-out Scheme.

Some sectors receive free allowances to prevent 'carbon leakage' (businesses relocating to countries without carbon pricing). Free allocations are based on benchmarks and reduce over time. Energy generators receive no free allowances. Industrial sectors receive varying amounts based on their carbon leakage risk. Free allowances are being phased down as the UK CBAM is introduced.

Strategies include: investing in energy efficiency to reduce emissions, switching to renewable energy, fuel switching (e.g., from coal to gas to hydrogen), carbon capture and storage, purchasing voluntary offsets for unavoidable emissions, and optimising processes to reduce waste. Many investments pay for themselves through reduced ETS compliance costs.