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