Written by Otto Terrell (Head of Sustainability, True Group)
The UK Emissions Trading Scheme (UK ETS) has been in place since 2021, replacing the UK’s participation in the EU ETS post-Brexit. It sets a cap on emissions from heavy industries, power and aviation sectors and creates a market for trading carbon allowances, incentivising decarbonisation. Free allocations of a proportion of allowances are currently granted to energy-intensive, trade-exposed industries, such as aluminium, shielding them from carbon leakage risk. The UK ETS Authority has extended the existing allocation rules until 2027.
The UK ETS is tightening to align with the UK’s 2050 Net Zero ambitions, with confirmed expansion into the domestic maritime and waste incineration sectors. For energy-intensive aluminium production, this means rising exposure to carbon costs if there is a reduction in free allocations. Upcoming changes to compensation for indirect emissions could also significantly affect competitiveness, especially in the EU which is a major export destination.
Looking ahead, the UK Carbon Border Adjustment Mechanism (CBAM) is due to start on January 1, 2027, while the EU CBAM will come into force from January 1, 2026. The CBAMs will apply a carbon levy to certain carbon-intensive imports, including aluminium, based on their embedded emissions. The aim is to minimise carbon leakage and prevent cheaper, high-carbon imports undermining UK and EU producers.
In May, the UK Government and European Commission announced their commitment to link their respective ETSs. This linkage is expected to reduce the competitive disadvantages for the UK aluminium industry caused by the EU CBAM, however misalignment in timings or regulations could result in sharp additional carbon tariffs. A detailed aluminium-specific assessment is needed to fully understand the impact, which ALFED continues to press the UK Government for.
What To Do Now?
Aluminium companies that decarbonise early, secure renewable energy and enhance transparency around their emissions can tap into the growing demand for sustainable materials and ‘green aluminium’. Global manufacturers are already willing to pay a premium for low-carbon materials. Companies who can prove their carbon credentials will be best placed to win contracts, protect margins and stand out in export markets, regardless of the ETS and CBAM linkage outcomes.
This is where True Group can help to turn this legislative challenge into opportunity. We combine market expertise with powerful technology – turning data into decisions that boost profitability, cut carbon and provide a competitive edge.
True Group can support companies in ALFED to get ahead with these key steps:
- Emissions Mapping: Understand your full carbon footprint, including direct and indirect emissions, with auditable data.
- Green Energy Procurement: Secure competitive renewable contracts in a volatile market.
- Risk Management: Model future carbon costs to forecast exposure.
- Invest in low-carbon technologies: Our True platform compares decarbonisation and energy efficiency projects based on real-time financial and emissions returns to identify a viable pathway to cut carbon.
Reach out today to turn carbon regulation into an advantage and position yourself as a leader.
To discuss further, book a call with the True Group experts today – https://meetings-eu1.hubspot.com/henry-igoe
