By Charlotte Rule, Head of Climate and Energy Policy at the ESA
In 2023, the UK Government first announced its intention to include the waste sector in the Emissions Trading Scheme (ETS) signalling, what would have been, a once-in-a-generation policy shift for the sector were it not for the major collection and packaging reforms already under protracted implementation.
The combined potential impacts of significant new costs and major infrastructure and services changes; coupled with the complexity of integrating concurrent major policy reforms, have resulted in a somewhat anxious two years, not just for those involved in the management of waste material, but also among those involved in placing in-scope products and packaging on the market.
A public consultation was held in 2024 seeking stakeholder views on the expansion of the ETS to include waste and, nearly a year later, we now have Government’s “interim” response published this week.
Although the interim response perhaps does not offer stakeholders and investors the desired clarity and certainty over the detail of the future scheme, this approach was not a surprise and reflects the views expressed by many stakeholders (including the ESA) over the course of the past year, that the monitoring, reporting and verification (MRV) regime must be designed carefully to ensure that emissions costs can accurately and fairly be passed-through to incentivise the decarbonisation behaviour the ETS aims to bring about. Without this mechanism, waste managers and local authorities will be lumbered with unavoidable costs with little direct agency or ability to reduce the emissions incurring those costs.
As such, this week’s announcement focused on the immediate requirements for monitoring, which will come into effect from 1st January 2026, and did not make any firm commitments on the future application of full ETS costs and timescales.
The MRV-only period from January 2026 should be useful to ensure that the MRV methodology, and relevant guidance notes, can be applied in practice, flushing out key difficulties based on ‘real world’ experiences, and ensuring that there are no unintended consequences ahead of full inclusion.
Although the ESA would have preferred that the MRV-only period was mandatory rather than voluntary (as part of the 96% of respondents who expressed this preference in the consultation), we welcome Government’s approach to using this critical period to gather valuable data upon which to further design the detail of the system, as well as an indication that the data gathered during the MRV-only period will be used to inform the development of emissions factors.
Beyond the existing rules and regulations that apply to all ETS participants, the Authority announced that operators coming into the scheme would be required to submit additional data on waste flows, types, and tonnages to facilitate the creation of emissions factors. The ESA has long been a strong advocate for the use of “coupled” emissions factors which link measured stack emissions back to waste producers in order to drive decarbonisation behaviours, so we welcome this position.
On the scope of waste treatment processes included in the voluntary MRV period, the ESA was pleased to see hazardous waste incineration excluded from this, on the basis that these facilities serve a vital sanitation function for which there is no lower-carbon alternative. There is a similar case to be made for clinical waste treatment, which was included in the initial scope of the MRV period, but the next two years will allow for sufficient data to be gathered to enable the UK ETS Authority to review and, hopefully, come to a sensible decision about the appropriateness of its future inclusion.
Irrespective of this, in contrast to high temperature hazardous waste incineration, clinical waste facilities are smaller in nature and fall under the ‘hospital and small emitter scheme’, which would be subject to special provisions to manage the costs of the system – a large portion of which would fall with the NHS.
So what are the remaining areas of concern for the sector?
There is a chance that the voluntary MRV period will deliver insufficient data to develop a clear method for monitoring and cost-allocation due to low participation. The ETS Authority predicts the required monitoring practices could cost £8.5m during the period – which will be borne by operators and for which there is no immediate or direct return other than contributing to the development of a system that works. As such, the ESA will work closely with the UK ETS Authority over the next two years and will strongly advocate for voluntary participation among EfW owners and operators prior to next January.
Looking beyond the MRV-only period, up until this week, the ETS Authority has been unequivocal in its view that the sector should be exposed to full ETS costs once they come into effect in January 2028. This remains the expectation, although this week’s announcement appears to offer Government some “wiggle-room” over this date – which could be necessary to allow sufficient time to align the scheme with the EU ETS (an intention announced in May this year) and perhaps navigate the political ramifications for the next General Election.
And what is missing?
This week’s interim response mainly addresses the MRV period, so large questions remain outstanding until the subsequent response is published. This will need to address protections against waste leakage; residual waste decarbonisation pathways; the broader areas of required guidance and, in a nutshell, how local government finances will be protected beyond the sums linked to the EPR regime.
ESA has advocated for a phased transition to ensure alignment with connected policy reforms (such as landfill bans) and avoid unintended consequences. Allowing room for an open-ended start date hints towards a cautious and pragmatic phased implementation, which would be welcomed by many in the sector. So while uncertainty remains, we view this week’s announcement with optimism that the Authority understands the challenges of the sector and has responded accordingly.
These issues aside, the ESA and its members are pleased to see progress being made and continue to view the inclusion of waste in the ETS as an essential (but not the only) tool to support our net-zero and circular economy ambitions.
The announcement this week draws up something of a roadmap for the implementation of ETS to the sector, but there will inevitably be bumps in the road that Government, along with its many stakeholders, will have to navigate.
ENDS
