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

Baroness Butler-Sloss Excerpts

Thursday 12th March 2026 Lords Chamber

[Earl Russell (LD)]

My Lords, I will respond to this SI and the regret amendment in the name of the noble Lord, Lord Moynihan. My noble friend Lady Suttie will respond to the specific points raised in the fatal amendment tabled by the noble Baroness, Lady Hoey.

This order extends the UK trading scheme to cover emissions from carbon dioxide, methane and nitrous oxide from domestic maritime activities for vessels over 5,000 gross tonnage, including in-port emissions, from 1 July 2026. It implements decisions of the UK ETS authority, agreed by all four Governments of the United Kingdom, and has already passed by a substantial majority in the other place. It is part of our broader strategy to decarbonise all sectors of the UK economy and to meet our legally binding 2050 net-zero targets.

To be clear, we support the order and we will not vote in favour of either the regret amendment or the other amendment. We believe, though, that the SI needs to meet three tests: it needs to have environmental integrity, economic fairness and practical deliverability. It must also support the UK’s wider trading interests, including our growing relationship with the European Union. The Liberal Democrats start from a clear point of principle: carbon must be properly priced and the polluter must pay. The UK ETS is a flagship decarbonisation instrument, a cap and trade system that sets a declining cap on total emissions and auctions allowances, each representing one tonne of CO² equivalent. Tightening that cap over time sends a clear signal to businesses about what they must reduce and by when.

Emissions trading is, in our view, the most effective way to cut total emissions at the lowest cost. It enables the market to identify and invest in the cheapest abatement options, rather than relying solely on prescriptive regulation, and that reduces carbon leakage. Extending the logic to domestic maritime completes a missing piece in the system that already covers power, heavy industry and aviation. Maritime emissions matter. They are a significant and growing source of CO² emissions. A key barrier to their reduction is that fuel prices do not adequately reflect the environmental costs and therefore reduce incentives for change. Including domestic maritime in the ETS helps to remove the barriers, putting a clear technology-neutral price on emissions from voyages and time spent at berth.

The Government’s impact assessment estimates a central net reduction of around 645,000 tonnes of CO² equivalent, delivering greenhouse gas savings valued on the central estimate of around £155 million and around £179 million in air quality benefits. Overall, the measure has a positive net social value on the Government’s central estimate of £132 million. That is a measurable gain for people and planet. Consultation material suggests that vessels over 5,000 gross tonnes account for two-fifths of domestic maritime emissions. Is the Minister confident that the scope and the threshold align with our overall carbon budgets?

Our climate policy must also be fair. Costs must not fall disproportionately on those who are least able to bear them. The Government’s impact assessment suggests limited consumer impact: typically 1% for most goods and around 2% for some—

[Baroness Butler-Sloss (CB)]

I am grateful to the noble Earl, Lord Russell. Can I ask him two things, from a state of ignorance? First, why is Scotland being omitted and Northern Ireland put in? Secondly, we seem to be dealing with an issue on CBAM that was not referred to in the House of Commons. It seems extraordinary that we should be looking at it from a different perspective from the House of Commons.

[Earl Russell (LD)]

I welcome the noble and learned Baroness’s intervention. The Scotland issue relates to devolved legislation and legislation that Scotland has passed. The issue in relation to the CBAM is in relation to—

--- Later in debate ---

The Government seek implementation by 1 July this year—just three and a half months away. I urge the Minister to delay inclusion of maritime in the UK ETS until full evidence and guidance is published, to ring-fence maritime ETS revenues for decarbonisation, to exempt the lifeline ferries to island communities about which we have heard much, and to pause the UK Government regulation for international emissions until IMO negotiations are completed. Can we also have, as the noble Baroness, Lady Hoey, said, an SI example, as requested?

[Baroness Butler-Sloss (CB)]

My Lords, I too share the disquiet—without, I have to say, any knowledge of the subject—of most noble Lords who have spoken so far, but I, like others, will be voting so I have three questions for the Minister. First, what was said to the other House? Apparently, the other House was told that CBAM was irrelevant. Today we are told that CBAM is entirely relevant. Is it really appropriate for both Houses to have a statutory instrument put to them on different bases? I find that very unattractive.

Secondly, we are told that misinformation, or false information, has been given to other parts of the United Kingdom. That seems to me a serious allegation, one which the Minister needs to answer. Thirdly—I will not dwell on it, because it has been dwelt on—there is an obvious element of discrimination between Scotland and Northern Ireland. That really needs a sensible, understandable answer.

[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.