Chapter 8.2 Business and Industry

Scotland and the Emissions Trading Scheme

Given Scotland’s climate targets are more ambitious than those at UK level, the UK Emissions Trading Scheme needs to put industry in Scotland on track to deliver a fair share of Scotland’s climate targets, which means reducing allowances faster than needed only to meet the UK’s targets and also reducing the amount of free allowances allocated at a faster rate than at the UK level. Free allowances for the oil and gas industry should be scrapped.

UK Govt
Scottish Govt
Local Authorities
Emissions reduction
Behaviour change

The UK Emissions Trading Scheme (UK ETS) replaces the EU Emissions Trading Scheme for UK businesses. The UK ETS covers energy intensive industries, the power generation sector and aviation for flights departing from or arriving in the UK. It covers around 100 participants in Scotland, accounting for 28% of Scotland’s greenhouse gas emissions.208 A range of industries can claim compensation for the impact of the UK ETS on their production costs.209

It is a ‘cap and trade’ system. So there is an annual cap on the number of allowances in the scheme and participants can trade with each other or participate in auctions to gather sufficient allowances to cover the emissions for which they are responsible. An allowance is worth 1tCO2e. The amount of allowances in the scheme decreases every year as total allowable emissions decrease. Many industries, including fossil fuel extraction and aviation are given free allowances, totalling nearly half of all allowances. It is particularly egregious that in 2022 oil platforms in UK waters were allocated 3.2 million free allowances, amounting to a hidden subsidy to fossil fuel extraction of around £250m a year.210 These free allowances should be scrapped immediately.

Since Scotland has more ambitious emission reduction targets than the rest of the UK, industry here needs to reduce emissions more quickly than in the rest of the UK, if it is to deliver a fair share of the overall effort needed to meet our targets. Thus the UK ETS needs to be adapted to drive emission reductions from businesses in Scotland faster.

For further information:


UK Emissions Trading Scheme, Scottish Government, 2022,


UK ETS Allocation Table for operators of installations, UK Government, May 2022,

Version 1.0: September 2023

The contents of this document will be updated on a regular basis.