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

Lord Whitehead Excerpts

Thursday 12th March 2026 Lords Chamber

Moved by

[Lord Whitehead]

That the draft Order laid before the House on 13 January be approved.

Relevant document: 49th Report from the Secondary Legislation Scrutiny Committee

[The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)]

My Lords, I thank the House for its consideration of this draft order, which was laid before the House on 13 January.

The UK Emissions Trading Scheme was established under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions trading scheme contributing to the UK’s emissions reduction targets and net-zero goal. The scheme was established to increase the climate ambition of the UK’s carbon pricing policy while protecting the competitiveness of UK businesses.

The scheme is run by the UK ETS Authority, a joint body comprising the UK Government and the devolved Governments acting together. A cap is set on the total amount of certain greenhouse gases that can be emitted by sectors covered by the scheme, and the cap is reduced over time so that total emissions must fall. Under the UK ETS, operators participating in the scheme are required to monitor, report on and surrender allowances in respect of their greenhouse gas emissions. The scope of the UK ETS is being expanded to maritime activities as part of the Government’s strategy of decarbonising all sectors of the UK economy to meet our net-zero target by 2050. It is an effective lever to reduce emissions and delivers on a key commitment in the UK’s maritime decarbonisation strategy. We expect this to help overcome key barriers to maritime decarbonisation by incentivising low-carbon fuels and fuel-efficient technologies and operating practices. Last week, the Government also brought forward £271 million of funding to help industry with the changes to vessels, fuelling and infrastructure required for maritime decarbonisation.

This statutory instrument makes amendments to the legislation that gives effect to the UK ETS. It expands the scheme’s scope to include coverage of carbon dioxide, methane and nitrous oxide from domestic voyages and in-port activities in the UK, effective from 1 July 2026. The instrument amends the legislation to require maritime operators to participate in the scheme, and to allow them to bid at auction for UK allowances. It will apply to ships of 5,000 gross tonnage and above, but a small number of exemptions apply, such as for government ships, including military and law enforcement ships, and ferries operating services to Scotland’s islands and peninsulas. Ferries serving Rathlin Island and the Isles of Scilly are out of scope of the instrument as they are below the 5,000 gross tonnage threshold. We consulted on the potential inclusion of Crown dependencies and overseas territories in the recent international maritime consultation, but they are not in scope of this instrument, which expands the scheme to domestic maritime emissions only.

The provisions set out in the instrument require the maritime operator of a ship, either its registered owner or the company responsible for its compliance with the International Safety Management Code, to obtain an emissions monitoring plan. This plan will document the processes used to ascertain its ships’ emissions. For each scheme year, maritime operators will then be expected to monitor, independently verify and report their maritime emissions to the relevant regulator, and surrender an equivalent level of allowances. The instrument also introduces the concept of “surrender deductions”, reducing by 50% the number of allowances for surrender in respect of voyages between Great Britain and Northern Ireland, to deliver equivalence in carbon-pricing coverage on routes across the Irish Sea. Operators will be assigned to a UK ETS regulator based on the location of their registered office or place of residence. This is the same approach that applies to aircraft operators.

One emissions monitoring plan will cover all the ships for which the maritime operator is responsible, and emissions must be monitored using one of the four methods prescribed in the instrument. Maritime operators will be required to report emissions from all ships for which they are responsible through an annual emissions report, which must be submitted to the regulator on or before 31 March in the year following the scheme year to which it relates. Maritime operators have an obligation to verify their annual emissions report. The verification must be carried out by an impartial and accredited verifier, independent from the maritime operator. If satisfied, the verifier will draft a verification report, which will be submitted to the regulator alongside the annual emissions report.

Maritime operators will also be required to surrender a level of allowances equivalent to their emissions by 30 April in the year following the scheme year. However, the instrument introduces the concept of a “double surrender”, whereby the date by which allowances must be surrendered in relation to the first scheme year—2026—is 30 April 2028 and not 30 April 2027, as would otherwise be the case.

Neither the UK carbon border adjustment mechanism, CBAM, nor its EU equivalent applies to maritime emissions, and this instrument does not introduce any CBAM obligations for maritime operators.

These changes follow comprehensive engagement and consultation with stakeholders. The UK and devolved Governments carried out a consultation in 2022 which was concerned with the development of the UK ETS, including whether to include maritime activities in the scheme. A second consultation ran between 28 November 2024 and 23 January 2025 and sought views on the details of how maritime would be incorporated into the ETS from 2026. The relevant responses to this consultation were summarised in the interim and main authority responses, published in July and November 2025 respectively.

I recognise the fatal and non-fatal amendments tabled by the noble Baroness, Lady Hoey, and the noble Lord, Lord Moynihan, for our discussion today. I wish to ensure that noble Lords in attendance today are aware that this legislation was approved by the Northern Ireland Assembly two days ago. This is of particular importance, as the amendments tabled identify potential issues with respect to Northern Ireland. I hope that this provides the noble Baroness and the noble Lord with some reassurance as to their concerns. Noble Lords will be aware that this instrument needs to be approved by all the UK legislatures. That has now been the case with the approval of this instrument by the Northern Ireland Assembly.

Further, I urge noble Lords to consider the importance of this legislation for our wider relationship with Europe, in particular in enabling a link with the EU ETS, which includes these emissions and will provide for a mutual exemption from CBAM. This exemption will protect UK businesses from charges on £7 billion-worth of goods and services. Linkage of our emissions trading systems, combined with the sanitary and phytosanitary—SPS—measures, is set to add nearly £9 billion to the UK economy by 2040. I strongly urge my fellow noble Lords to consider these benefits, and the costs they would be placing on UK businesses today should they vote in favour of the amendments tabled by the noble Baroness and noble Lord.

In conclusion, the expansion of the UK ETS to cover maritime activities will support its role as a fundamental pillar of the UK’s climate policy. It plays a key part in the Government’s strategy of decarbonising all sectors of the UK economy to meet our net-zero target by 2050. It also delivers on a key commitment within our maritime decarbonisation strategy. I beg to move.

Amendment to the Motion

Moved by

--- Later in debate ---

[Baroness Suttie (LD)]

My Lords, this has been a characteristically impassioned debate, which is perhaps not surprising given the subjects of EU alignment, devolution and greenhouse gas emissions. It is inevitable that people are going to feel very strongly about this subject. If the noble Lord, Lord Empey, expressed his concern for the Minister in trying to reply to this debate, I would add that it is slightly difficult, as the only Scot who has so far spoken in this debate. In well over two hours, I think I am only the fourth person to vaguely talk in favour of this statutory instrument. I thank the Minister for both his time, when he gave us a briefing, and his introduction to these regulations. I also thank the noble Baroness, Lady Hoey, for tabling this fatal amendment—even though we will not be supporting it—because it is incredibly important that we get the time to debate these matters.

As the noble Lord, Lord Dodds, said, it is incredibly important that this Parliament has a chance to debate these issues, not least because we are going to see an increasing number of them as we approach dynamic alignment with the European Union on ETS, as well as potential agreements on SPS and the electricity market. We have to find a way to allow this Chamber and those at the other end of the building to debate these things properly. I hope that the Government are giving some considerable thought to how effective parliamentary oversight on these matters can and will take place if and when these additional agreements are made later this year.

These regulations, it should be recalled, stem from regulations introduced by the Conservative Government in 2021 and the creation of the UK ETS following our departure from the EU ETS after Brexit. As these issues are devolved, they have had to be decided by the four parts of the United Kingdom. In answer to the noble and learned Baroness, Lady Butler-Sloss, I am the only Scot speaking here today, but it was the Scottish Government who effectively campaigned for the exemption for the Scottish islands. They are not my party, but they obviously campaigned very successfully on this matter. The noble Baroness, Lady Foster, who is no longer in her place, was right when she said that these regulations stem from regulations introduced in the Scottish Parliament in 2018.

It is important to note that these regulations were agreed last month by both the Scottish Parliament and the Welsh Senedd, and this week by the Northern Ireland Assembly, notwithstanding the comments from noble Lords about that process. It was voted for by the Northern Ireland Assembly by 44 votes to 23 this Tuesday. As I said, the noble Baroness, Lady Foster, was quite right. My understanding is that the exemption for Scottish ferries is not a general maritime exemption; it stems from the Islands (Scotland) Act 2018, which was passed by the Scottish Parliament eight years ago to protect specific lifeline services for small, isolated island communities. Clearly, protection for small island communities is very important. Will the Minister confirm that this Scottish exemption for island ferries will form part of the review in 2028? I feel it is important for us to know.

I also thank the Minister for clarifying that ferries to small island communities in Northern Ireland are already exempt from these regulations, as they do not involve vessels of over 5,000 cubic tonnes. As my noble friend Lord Russell clearly set out, we on these Benches strongly support measures to reduce the quantity of greenhouse gases produced by maritime activities, but we none the less believe that these must be accompanied by port upgrades or cleaner fuel infrastructure, as well as by encouraging innovation and economic development in a cleaner maritime sector. I note, in passing, that those who constantly oppose measures to reduce climate change never seem to factor in the cost of non-action. We also support the general principle of aligning as closely as possible with the EU ETS to minimise friction on trade.

It is important to bear in mind, however, the impact that other noble Lords have set out on the economy of Northern Ireland and on the cost of living in these increasingly challenging times for the global economy, not least in terms of energy because of the war in the Gulf. It is also important to allow a full and transparent review of how the scheme works in practice and to correct any unintended consequences once it is introduced later this year. Given that the Government’s own impact assessment states that Northern Ireland

“could face disproportionate administrative burdens”,

it is important that we continue to monitor the situation extremely closely. Can the Minister say whether they intend to give regular reports to this Parliament, as well as to the devolved parliaments, on how the regulations are working in practice once they are introduced? Can he confirm that they will continue to consult closely the maritime sector, businesses and consumer organisations?

As there is currently a distinct lack of viable low-carbon alternatives for many maritime routes serving Northern Ireland, have the Government carried out any analysis regarding the extent to which additional ETS-related costs could be passed on to consumers by shipping operators and retailers? The EU ETS currently covers 50% of emissions from international voyages starting or ending in an EU member state, which, for example, currently includes container ships travelling from GB to the Republic of Ireland. It is therefore welcome that there is a 50% deduction for GB-NI routes, as it provides for a level playing field with Irish ports. However, if and when there is increasing—or indeed eventually full—alignment with the EU ETS, can the Minister say whether he expects this 50% deduction for both the Republic of Ireland and GB-NI routes to be removed? I appreciate that might be a rather complicated question, but I would very much appreciate his answer. Can he also say what measures the Government intend to put in place to avoid a cliff edge following the review of these regulations in 2028?

In conclusion, we support these regulations as we welcome the move towards greater alignment with the EU ETS, and we do not support either the regret amendment or the fatal amendment. None the less, we recognise the need for proportionality as well as strong transitional and review measures. I look forward to hearing the Minister’s reply.

[Lord Whitehead (Lab)]

I thank noble Lords for their valued, valuable and very wide-ranging contributions to this debate this afternoon. I am, I think, a fairly plain and straightforward person, but I have at times in the debate failed to get to grips with exactly what it is supposed to be about. It is about the decarbonisation of the UK economy, how the emissions trading scheme is probably the most efficient way of ensuring decarbonisation in our economy, and what should and should not be in that emissions trading scheme. We have also heard in the discussion how that trading scheme might be more widely based so that its decarbonisation effect is improved.

A part of that is of course the entry into the ETS of the maritime sector. For those who say that this statutory instrument is very rushed, I might have to go down a brief historical byway and mention that one can trace back this particular SI to a 2022 consultation on whether the maritime sector should be included in the ETS—a consultation under the previous Government, not this Government, I might add. The response to that consultation was a strong indication that, yes, the maritime sector should be in the emissions trading scheme. Since then, there has been a series of consultations with the maritime industry and many other people about exactly how that should be done, what part the maritime industry should play in its own decarbonisation and how it can contribute substantially to the UK overall trading emissions picture. I have to say that the UK maritime industry has done very well in its contribution so far to making that transition as effective as it can be.

Taken in that context, I am a little surprised at the regret amendment that has been tabled, because essentially this is a past Government regretting their own actions. Yes, there is plenty to regret about the previous Government, but to have the previous Government regretting themselves seems to be a step further forward than was previously the case.

--- Later in debate ---

[Lord Ashcombe (Con)]

We have a problem with the Isle of Wight. One of the vessels has done everything that it could possibly do to decarbonise. It has no option to go anywhere else because the power is not there. It is a fully hybrid boat, as the noble Lord, Lord Greenway, pointed out with a great deal more technical ability than I have. These vessels cannot go anywhere else, so this is a straight tax that will end up primarily on the residents of the Isle of Wight.

[Lord Whitehead (Lab)]

The noble Lord makes a strong point about the power supply to the Isle of Wight. This is also the case with some other ports. Other noble Lords have said this in their interventions, including the noble Lord, Lord Greenway, for whom I have a great deal of respect and admiration, through our long relationship with the Maritime and Ports Group in another place. He speaks with great authority and considerable knowledge and wisdom on this subject.

Shore power and an electrical supply to ports to enable decarbonisation to take place is a serious question. Both the port of Portsmouth and, in parallel, the port of Southampton suffer from particular cable connections from the substations in their area, which could, at a sub-national grid level, provide sufficient shore power and power for the electrical hybrid ships that may visit these ports. That can be effected by what is called a reopener of the arrangements for distributed network operations to ensure that this power can come forward at an early date. This is what Southampton has done. The power is likely to be forthcoming long before the 2037 date that the noble Lord mentioned. If Portsmouth has not done this yet, I would suggest that it does so. The power is there and readily available to get to the ports. It is a question of putting it in early, rather than later, to make sure that this transition can take place. That is part of a wider problem about grids and grid power in the country as a whole, which this Government are addressing urgently to make sure that we have the power to get ourselves across the transition in the way that we want.

Because of the time available, I will have to address some of the issues by writing to a number of Peers. In this debate, I want to emphasise that this is not a conspiracy to do anybody down or to try to isolate particular communities. Nor is it aimed at undermining the economic prosperity of the country. It is a decarbonisation measure that has to happen as part of our general decarbonisation route to net zero. It would be anomalous if the maritime sector were to be excluded from that decarbonisation route and if we were not to take measures, which I have known about for a long while, to make sure that that decarbonisation route is as effective as it can be in how it aligns with the EU ETS and eventually with the CBAM process. At present there is some problem of alignment because the EU CBAM process is proceeding earlier than the UK CBAM process. These need to be aligned in the longer term. As has been mentioned in this debate, the prize for that alignment is a substantial bonus for UK trade—£9 billion or so over a longer period. It would be remiss of this Government if they did not have that largely in view in what they are undertaking as far as this SI is concerned. Indeed, the Government do have this in view.

I can certainly say to noble Lords that the effect of this SI will be seriously reviewed in 2028. It is likely that, should everything come into proper alignment with CBAM and the EU, some of those shorter-term exemptions and changes will come jointly into alignment for the net benefit of everybody, including Northern Ireland, the Republic of Ireland and the UK. That alignment will mean a joint overall benefit all round.

--- Later in debate ---

[Lord Whitehead (Lab)]

It is not an impossibility for the next 15 years. Getting an accurate picture of trade always involves a range of calculations—you cannot get it exactly right. However, so far the impact of this proposed order has been assessed at below 1% of those costs; the Government do not recognise the figure of 6% put out by some parts of the industry. That is set against the gain that could come from those bodies being in the ETS, the alignment with CBAM in future and so on.

I might add that, although the product of this particular entry into the ETS has not and will not be hypothecated—indeed, no British Government have ever hypothecated anything that has come into their coffers—what we need to judge it by is how much money has already gone out. Just last week, £271 million went out to further support the maritime industry in its transition to a low-carbon basis. The SHORE fund has several hundred million in it, including £18 million that has already gone to Northern Ireland. All of these are paying back the money that is going into the fund in the future, for the benefit of the maritime industry and its transition.

[Baroness Hoey (Non-Afl)]

My Lords, at the beginning of this debate, when I was being nice to the Minister and thanked him for the meeting he asked for with me, I said that I did not want to spoil his career prospects and that I thought that, if it had been his decision, he might have chosen to withdraw the SI at the beginning. Now, by the end of this debate, perhaps he would have been even more keen to withdraw it.

This has been an extremely good and wide-ranging debate, as the Minister said. It has brought together two or three key issues—I will not go over them again. It is the first time I have had an SI dealing with not only Northern Ireland but other parts of the United Kingdom, and it has been very good to see so many of the Government Benches full. If one benefit of tabling a fatal amendment is to get a lot of Labour Peers to come here and listen, it is probably worth it.

I thank in particular those Peers who do not normally speak on issues related to Northern Ireland. My fatal amendment is very much geared to the inequality of Northern Ireland and the way it is treated differently from Scotland. It was particularly good to hear from the noble Lords, Lord Berkeley and Lord Ashcombe, on the wider aspects of the SI in relation to the Isle of Wight and the Scilly Isles. It was also good to hear from the noble Baroness, Lady Bennett, and the noble Lords, Lord Mountevans and Lord Greenway—I am very sorry if this might well have been his last speech in the House—who brought their genuine experience of shipping.

If there is any lesson to learn today about speeches, it is that we should all, including me, follow the example of the noble and learned Baroness, Lady Butler-Sloss, who, in her two very short interventions, hit the nail right on the head about how this issue has been handled. Despite the meetings on this side, what happened over the past few days in Northern Ireland was a very bad way for government to be working. The way that the Northern Ireland Office has completely ignored the wishes and needs of Northern Ireland, in terms of business opportunities and what will happen with this carbon tax, has been quite deplorable. Worst of all, as has been said by a number of Peers, was the way the statutory instrument was dealt with in the other place: absolutely different information was given right up to the very last minute. The MLAs were cajoled, blackmailed and treated by the Government as if they were pretty stupid and would not understand that they were being told things that were different from what had been said in the other place.

I thank all Members who have spoken. Of course, all the Northern Ireland Members know the issue and how strongly people will feel its effects. The unfairness to part of the United Kingdom, which comes up over and over again in this place, is becoming ridiculous and quite unsustainable if we care about the union and equality between all parts of the union. Having said all that, I really do not want to waste people’s time when they have sat through and listened. I would like to test the opinion of the House.