What happened

On 4 November 2026 the Department for Energy Security and Net Zero published the UK ETS Authority's report on the functioning of the UK carbon market for 2025. The Authority is the UK government and the Scottish and Welsh governments with Northern Ireland's environment department, and the report is its yearly summary of how the scheme ran: who is in it, how many allowances were released, what they sold for and whether everyone paid up. Each allowance, a UKA, covers one tonne of CO2e, and every operator in the scheme must surrender one for each tonne it emits by 30 April of the following year. The main figures, from the report itself:

  • Emissions down 6.9%. Total emissions under the scheme were 79,716,174 tonnes CO2e in 2025, against 85,610,435 in 2024, a fall of 5,894,261 tonnes.
  • Industry fell, power rose. Industry: 35.5 to 30.0 million tonnes (-15.4%); Power: 29.1 to 29.6 million tonnes (+1.6%); Fuel supply: 11.4 to 11.0 million tonnes (-4.1%); Aviation: 9.0 to 8.6 million tonnes (-4.3%); Other (district heating, data centres, campuses and similar): 0.6 to 0.6 million tonnes (-4.3%).
  • Prices climbed through the year. All 25 auctions cleared. The clearing price ran from £31.20 on 22 January to £57.25 on 17 September. The Authority gave away 24.8 million allowances free to sectors at risk of moving abroad and auctioned 55,964,500. The cost containment mechanism, which lets the Authority add supply if prices stay very high for six months, was not triggered.
  • Compliance stayed high. Of 683 installation operators with an obligation for 2025, 681 surrendered enough allowances by the 30 April 2026 deadline, and 363 of 376 aircraft operators did. Anyone short pays an excess emissions penalty of £100 a tonne (indexed to inflation) and still has to hand over the missing allowances.
  • What comes next. The auction reserve price, the lowest price an auction can clear at, rose from £22 in 2025 to £28 for 2026. Free allocation for airlines ended in 2026, ships joined on 1 July 2026, and the next free allocation period runs 2027 to 2030. The report says the UK and EU aim to conclude talks on linking their two schemes by the EU-UK summit in Brussels on 20 November.

Two figures are ours, worked out from the report's own auction table: the 2025 auctions raised about £2.69 billion, and the average price across every allowance sold was £48.05 a tonne. Power stations and industry now account for about 37% and 38% of the scheme's emissions each.

What it means for your business

Most businesses are not in the UK ETS, but its cost can still reach them. The scheme covers power stations, heavy industry, sites burning fuel in combustion units above 20MW in total, flights within the UK and to Europe, and now domestic shipping. If you are not one of the 717 installation operators or 625 aircraft operators with a registry account, you have no allowances to buy or surrender. But the cost of allowances can be passed on: by gas-fired power stations into wholesale electricity prices, by airlines into fares, and by steel, cement and chemical makers into what they charge. The report does not measure how much reaches customers, so we don't put a figure on it.

The fall is in industry, and it does not all mean cleaner production. The report gives the figures but not the reasons. A drop in industrial emissions can come from efficiency and fuel switching, or from plants producing less or closing. If your suppliers are UK manufacturers, their own footprint figures will tell you which; the national total will not.

It is a useful price for your own planning. Businesses outside the scheme often use a "shadow" carbon price to compare projects, such as a heat pump against a new gas boiler. The 2025 auction prices are the market's own figure for a tonne of CO2e in the UK, and the reserve price of £28 sets a floor for 2026 auctions. They are not what the government uses to value carbon in its own appraisals: its central value for 2026 is £316.95 a tonne in 2025 prices. Our post on the government's carbon values explains the difference.

It feeds into UK CBAM. From 1 January 2027 importers of iron and steel, aluminium, cement, fertiliser and hydrogen goods pay for the carbon in them at a rate based on the UK ETS price. If you import those goods above the threshold, the UK carbon price will reach your costs directly. Our UK CBAM guide covers who pays and when, and our post on the draft UK-EU emissions trading text explains what linking would change.

A worked example: putting the 2025 carbon price on your gas

Take an illustrative business outside the scheme, such as a factory or a large hotel, that burns 400,000 kWh of natural gas a year. On the 2026 government factor of 0.18231 kg CO2e per kWh, that is 72.92 tonnes CO2e of Scope 1 emissions. If it priced those tonnes at the 2025 UK ETS auction prices:

  • At the lowest clearing price of £31.20: about £2,275 a year.
  • At our average of £48.05: about £3,504 a year.
  • At the highest clearing price of £57.25: about £4,175 a year.
  • Cutting gas use by 10% would remove 7.29 tonnes, worth about £350 a year at the average price.

This business does not pay this money; it is a way to put a number on its emissions when comparing options. A site big enough to be in the UK ETS would pay it for real, less any free allowances, and the spread between the lowest and highest auction shows how much the figure moved within one year.

What to do now

  1. Check whether you are in scope. If you run combustion plant with a total rated input above 20MW, or operate flights or large ships, read the UK ETS Authority's guidance on taking part in the markets. Smaller emitters may qualify for simpler rules; our post on hospital and small emitter targets explains the thresholds.
  2. Pick a carbon price for decisions. If you compare projects on cost, add a line for carbon using a stated price and year, such as the 2025 average above, so the choice does not rest on today's energy price alone.
  3. Ask your big suppliers for their figures. If you buy from UK manufacturers, ask for their emissions and how they changed in 2025. It helps your Scope 3 and shows whether a fall is real.
  4. If you import CBAM goods, prepare for 2027. Find the commodity codes of what you import and where it comes from; the UK ETS price will feed into what you owe.