TRW & Co · Energy, Infrastructure & Transport
Carbon Markets and Emissions Trading Lawyers in London
Carbon markets lawyers in London advise on the UK Emissions Trading Scheme, the UK carbon border adjustment mechanism and voluntary carbon credits. With shipping now inside the UK ETS, CBAM charges starting in January 2027 and talks on linking with the EU ETS advancing, carbon costs and claims now belong in board-level planning.
Key pointThe UK CBAM makes the importer of record liable from 1 January 2027, but the data needed to calculate the charge sits with overseas producers. Supply contracts signed now should oblige suppliers to provide verified emissions data and allocate the cost.
At a glance
UK ETS since 2021
The Greenhouse Gas Emissions Trading Scheme Order 2020 created the UK ETS, a cap-and-trade scheme that replaced UK participation in the EU ETS from 1 January 2021.
Shipping now in scope
Ships of 5,000 gross tonnage and above on domestic voyages joined the UK ETS on 1 July 2026, with offshore ships following from 1 January 2027.
CBAM from January 2027
The UK CBAM covers aluminium, cement, fertiliser, hydrogen, iron and steel, with registration for importers above £50,000 of covered goods a year.
Allowances are financial instruments
UK emission allowances and their derivatives are financial instruments, so FCA permissions and market abuse rules can apply to trading and advice.
Voluntary market integrity
The government consulted in 2025 on six integrity principles for voluntary carbon and nature markets and published a summary of responses in March 2026.
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What carbon markets lawyers in London advise on
Carbon markets lawyers in London advise on two very different markets that are increasingly connected. The compliance market is the UK Emissions Trading Scheme (UK ETS), a legal obligation for covered operators to monitor emissions and surrender allowances. The voluntary market is the trade in carbon credits that companies buy to support climate claims, generated by projects around the world under private standards and, increasingly, under the Paris Agreement.
Both markets are expanding in 2026. The UK ETS now covers domestic maritime emissions, energy-from-waste facilities are in a monitoring period ahead of full inclusion, and a UK carbon border adjustment mechanism (CBAM) takes effect on 1 January 2027. In the voluntary market, the government has consulted on integrity principles and regulators are scrutinising green claims more closely than ever.
TRW & Co advises operators and shipowners in the UK ETS, importers preparing for CBAM, developers and buyers of carbon credits, traders and financial institutions, and Bangladeshi and other international businesses whose exports or projects are affected by UK carbon pricing. This work sits within our energy and ESG and sustainability practices.
The legal and regulatory framework
The UK Emissions Trading Scheme
The UK ETS was created by the Greenhouse Gas Emissions Trading Scheme Order 2020, made under the trading scheme powers in the Climate Change Act 2008. It replaced the UK’s participation in the EU ETS from 1 January 2021 and is a cap-and-trade scheme: the cap on total allowances falls over time, and covered operators must surrender one allowance for each tonne of carbon dioxide equivalent they emit.
The scheme is governed jointly by the UK ETS Authority, made up of the UK government, the Scottish Government, the Welsh Government and the Northern Ireland Department of Agriculture, Environment and Rural Affairs. It therefore applies UK-wide, though day-to-day regulation is split between national regulators.
| Body | Role | When you deal with it |
|---|---|---|
| UK ETS Authority | Policy, cap setting and scheme design | Consultations on scope, free allocation and market mechanisms |
| Environment Agency, SEPA, Natural Resources Wales, Northern Ireland regulator | Permits, monitoring plans, verification and civil penalties for installations and other activities in their area | Permit applications, annual reports, surrender compliance and enforcement |
| Offshore Petroleum Regulator for Environment and Decommissioning | Regulator for offshore installations | Offshore oil and gas emissions permits |
| Financial Conduct Authority | Emission allowances and their derivatives are financial instruments; market abuse rules apply | Trading, intermediation and advice on allowances |
| HM Revenue & Customs | Administration of the UK CBAM from 2027 | Registration, returns and payment for covered imports |
| Competition and Markets Authority and Advertising Standards Authority | Consumer protection and advertising rules on environmental claims | Carbon-neutral and offsetting claims |
How allowances reach the market
Allowances are issued by auction on ICE Futures Europe and by free allocation to sectors at risk of carbon leakage. Market management tools include an auction reserve price and a cost containment mechanism. The government’s guidance on taking part in the UK ETS markets explains auction access and registry accounts. Because allowances are financial instruments, firms dealing or advising in them may need FCA permissions; our financial services regulation team advises on perimeter questions.
UK ETS expansion: maritime, waste and removals
The scheme is widening significantly. Our article on UK ETS expansion covers the detail; the headline changes are below.
| Sector | What changes | Timing |
|---|---|---|
| Domestic maritime | Ships of 5,000 gross tonnage and above on domestic voyages and in UK ports, regardless of flag; the maritime operator is usually the registered owner | From 1 July 2026; offshore ships from 1 January 2027; first surrender covering 2026 and 2027 due by 30 April 2028 |
| Waste incineration and energy from waste | Monitoring, reporting and verification period ahead of full participation | Monitoring from 2026; full inclusion from 2028 |
| Greenhouse gas removals | Integration of engineered and other removals into the scheme | Planned from 2029 |
| International maritime | The Authority has consulted on covering half of emissions from international voyages to and from the UK | Proposed from 2028; not yet settled |
Shipowners and ISM managers should look at charterparty clauses now: who bears allowance costs on time charters, how they are passed through on voyage charters, and what happens on sale of a vessel mid-year. Our shipping and maritime team drafts these provisions.
Waste operators face a different problem. The monitoring period gives them time to build data systems, but long-term municipal waste contracts often run well beyond 2028 and may not allow the new carbon cost to be passed to the local authority. Carbon markets lawyers in London are reviewing change-in-law clauses in those contracts now, while there is still time to negotiate before full inclusion.
EU linking and the UK carbon border adjustment mechanism
Linking with the EU ETS
In May 2025 the UK and EU agreed to work towards linking their emissions trading systems, and negotiations continued through 2026, with reports in October 2026 that agreement had been reached ahead of a planned summit. Until a linking agreement is concluded, ratified and in force, the two schemes remain separate, prices can diverge and there is no mutual CBAM exemption. Carbon markets lawyers in London are advising clients to plan for both outcomes.
The UK CBAM from 2027
The UK CBAM applies from 1 January 2027 with no transitional reporting phase. Enabling powers sit in the Finance Act 2026, with secondary legislation laid during 2026. Key features, explained further in our UK CBAM guide:
- Sectors. Aluminium, cement, fertiliser, hydrogen, and iron and steel. Electricity imports are excluded.
- Who pays. The importer of record bears the charge and compliance obligations, even if an agent files returns.
- Threshold. Importers of covered goods worth £50,000 or more over a rolling 12-month period must register.
- Rate. Derived from the UK ETS price, adjusted for free allocation, and published quarterly.
- First return. The first accounting period ends on 31 December 2027, with the first return and payment due by 31 May 2028.
Overseas producers will be asked for verified embedded-emissions data. Supply contracts should now oblige suppliers to provide it, allocate the cost of the charge and deal with any carbon price already paid in the country of origin.
Voluntary carbon markets and carbon credits
The voluntary market is largely contractual. A carbon credit is created when a project is validated and its emission reductions or removals are verified and issued under a standard, then recorded in that standard’s registry. Its legal character in English law — as a contractual right, an intangible asset or property — affects how it can be transferred, secured and recovered on insolvency.
The UK integrity agenda
The government has set out six principles for voluntary carbon and nature market integrity and consulted on implementing them between April and July 2025. A summary of responses was published in March 2026, reporting broad support for internationally aligned expectations on credit quality, use and claims. Domestic codes such as the Woodland Carbon Code and the UK Peatland Code operate alongside international standards and the Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles.
Article 6 of the Paris Agreement
Article 6 allows countries to transfer mitigation outcomes between them, and credits authorised for that purpose carry corresponding adjustments to the host country’s emissions accounting. For buyers and developers, the host state’s authorisation, the letter of approval and the risk of withdrawal now need to be addressed in the purchase agreement.
Contracts, claims and disputes
Most legal risk in carbon markets shows up in three places: purchase contracts, public claims and disputes. Carbon markets lawyers in London spend much of their time making the first two robust enough to avoid the third.
Emission reduction purchase agreements
Forward purchase agreements for credits commonly address delivery shortfall, replacement credits, make-whole payments, changes to standards or methodologies, buffer pools and reversal, host-country authorisation, and sanctions and anti-bribery compliance. For allowances and derivatives, industry master agreements are widely used, with schedules tailored to the UK registry.
Green claims and greenwashing
Claims such as “carbon neutral” or “net zero” that rely on offsetting attract scrutiny under consumer law, advertising codes and, for regulated firms, the FCA’s anti-greenwashing rule. The CMA now has direct fining powers for consumer law breaches under the Digital Markets, Competition and Consumers Act 2024. Our consumer protection team reviews claims before launch.
A carbon credit is only as good as the contract that delivers it and the claim made with it. Most disputes trace back to one of those two documents.
How to approach a carbon markets project
- Map your exposure. Identify UK ETS obligations, CBAM-covered imports, voluntary commitments and public claims across the group.
- Confirm permits and plans. For compliance entities, check the greenhouse gas permit or emissions monitoring plan, verifier arrangements and registry accounts.
- Set a procurement strategy. Decide the mix of auction purchases, secondary trades, forwards and, for voluntary goals, credit types and vintages.
- Diligence the asset. For credits, review the standard, methodology, verification reports, registry records, host-country authorisation and counterparty.
- Negotiate the contract. Allocate delivery, regulatory change, reversal, tax and sanctions risk, and agree governing law and dispute resolution.
- Govern claims. Align marketing, sustainability reporting and investor disclosures with what the credits and allowances can support.
- Monitor and comply. Track scheme amendments, CBAM rates and linking developments, and keep evidence for verifiers, HMRC and regulators.
Documents and evidence to assemble
When carbon markets lawyers in London review a compliance position or a credit transaction, the analysis turns on records rather than intentions. Assemble the following early, because gaps in data are the most common cause of delay.
- Greenhouse gas emissions permits or monitoring plans, annual emissions reports and verification opinions.
- Registry account details, authorised representatives and transaction records.
- Free allocation applications and activity level reports.
- CBAM import data, commodity codes, supplier emissions data and evidence of carbon prices paid overseas.
- Credit project documents: design documents, validation and verification reports, issuance records and host-country letters of authorisation.
- Purchase agreements, master trading agreements and any intermediary or brokerage terms.
- Drafts of public claims, sustainability reports and transition plans; see our note on UK sustainability reporting standards.
Risks and common mistakes
Missing the surrender deadline or misreporting emissions
The UK ETS is a strict compliance regime. Failing to surrender enough allowances by the deadline triggers an excess emissions penalty per tonne on top of the obligation to make good the shortfall, and failures in monitoring, reporting or permitting carry civil penalties. Regulators publish enforcement information, so a penalty can also become a reputational issue. Build internal deadlines well ahead of the statutory dates, check verifier availability early and keep a clear audit trail of how reported figures were calculated.
Not passing carbon costs through in supply and charter contracts
New scope brings new cost lines. Shipowners now entering the UK ETS, importers facing CBAM from 2027 and waste operators moving towards full inclusion all need contracts that say who pays. Without an express clause, the person with the regulatory obligation usually bears the cost. Review charterparties, supply agreements, tolling and offtake contracts, and add carbon cost pass-through, data cooperation and price adjustment terms, with a mechanism for any EU linking or CBAM exemption that changes the cost.
Buying credits without checking their legal quality
Credit quality is not only a scientific question. Buyers should confirm that the seller has good title, that the credits are issued and unencumbered in the registry, that the standard and methodology have not been suspended, and, where relevant, that host-country authorisation has been given and cannot be withdrawn without remedy. Forward contracts need clear replacement and termination rights. Sanctions, anti-bribery and community-rights diligence also matter, particularly for projects in emerging markets.
Making offset-based claims that cannot be substantiated
Consumer and advertising regulators expect environmental claims to be clear, accurate and backed by evidence, and they treat claims based on offsetting with caution. A claim of “carbon neutral” based on low-quality or poorly described credits can be misleading. With the CMA able to impose fines directly, the cost of a bad claim has risen. Describe what the credits do, avoid absolute claims unless they can be proved, and keep claims under review as standards and guidance evolve.
Trading allowances without the right permissions
Because emission allowances and their derivatives are financial instruments, dealing, arranging or advising on them in the UK can require FCA authorisation, and the market abuse regime applies to inside information and manipulation. Compliance entities trading for their own account often fall within exemptions, but trading desks, brokers and platforms need a careful perimeter analysis. Check this before setting up a trading function or offering carbon products to clients.
Cross-border angle: Bangladesh, the EU and international projects
UK carbon pricing reaches well beyond the UK. Exporters of steel, aluminium, cement and fertiliser to the UK will feel the CBAM through their customers’ data and pricing demands, and EU-facing businesses must also manage the EU’s own CBAM and ETS. Carbon markets lawyers in London advising on cross-border trade need to understand both systems and how a link would change them.
For Bangladesh, the effects are twofold. Bangladeshi exporters of covered goods and the UK importers who buy from them will need emissions data and contract terms that allocate the CBAM cost, which matters as Bangladesh prepares for graduation from least developed country status — see our article on LDC graduation and UK trade. Bangladesh also hosts carbon credit projects, such as clean cooking and renewable energy schemes, where Article 6 authorisation and local law on land and community rights need attention.
Gulf states and Singapore are developing their own carbon exchanges and Article 6 frameworks, and buyers often contract under English law with London arbitration. Our offices in Dhaka, Dubai and Singapore coordinate local advice with the London team.
How our carbon markets lawyers in London help
We combine regulatory, contract, trade and disputes expertise. We do not claim higher rights of audience; where advocacy in the higher courts is required, we instruct specialist counsel.
UK ETS compliance
We advise operators, shipowners and waste businesses on scope, permits and monitoring plans, free allocation, surrender obligations and responses to regulator enforcement.
CBAM readiness
We help importers and overseas suppliers understand registration, liability and data obligations, and redraft supply contracts to allocate the charge and secure verified emissions data.
Carbon credit transactions
We draft and negotiate emission reduction purchase agreements, forward offtakes and project development agreements, including Article 6 authorisation and replacement terms.
Claims and disclosures
We review net zero, carbon-neutral and offsetting claims against consumer law, advertising codes and FCA rules, and align them with sustainability reporting.
Trading and financial regulation
We advise on FCA perimeter questions, market abuse controls and trading documentation for allowance and credit desks, brokers and platforms.
Disputes
We act in delivery failures, reversal and replacement disputes, misrepresentation claims and regulatory challenges, in the English courts and international arbitration.
If you import steel, aluminium, cement, fertiliser or hydrogen into the UK, ask your suppliers now for verified embedded-emissions data and add a clause obliging them to provide it. Without it, the default values applied to your imports may be less favourable than your real emissions.
Checklist for decision-makers
Boards and general counsel can use these questions to test readiness before instructing carbon markets lawyers in London on a specific matter.
- Do any of our activities, ships or facilities fall within the UK ETS now or under the planned expansion?
- Do we import CBAM goods above the £50,000 threshold, and do our supply contracts secure emissions data?
- Who bears carbon costs under our charterparties, supply, tolling and offtake contracts?
- Are our credit purchases supported by title, registry, methodology and authorisation diligence?
- Can every public carbon claim be substantiated, and does it match our sustainability reporting?
- Do we need FCA permissions or market abuse controls for our trading activity?
- Have we planned for EU linking succeeding, being delayed or changing price dynamics?
To discuss a UK ETS, CBAM or carbon credit matter, contact our London office or browse all our practices.
Frequently asked questions
01Who has to take part in the UK ETS?
The UK ETS covers operators of energy-intensive installations above the scheme thresholds, power generation, aviation on covered routes and, since 1 July 2026, ships of 5,000 gross tonnage and above on domestic voyages and in UK ports. Energy-from-waste and waste incineration facilities are in a monitoring period before full inclusion from 2028, and greenhouse gas removals are planned to join from 2029. Covered operators need a permit or monitoring plan, must report verified emissions each year and must surrender allowances equal to those emissions by the deadline.
02How does the UK CBAM work and when does it start?
The UK CBAM starts on 1 January 2027. It applies a charge to imports of aluminium, cement, fertiliser, hydrogen, and iron and steel, based on the embedded emissions of the goods and a rate derived from the UK ETS price. The importer of record is liable and must register once covered imports reach £50,000 over a rolling 12-month period. The first accounting period runs to 31 December 2027, with the first return and payment due by 31 May 2028. Carbon prices paid overseas may reduce the charge if properly evidenced.
03Will the UK ETS link with the EU ETS?
The UK and EU agreed in May 2025 to work towards linking their emissions trading systems, and negotiations continued through 2026, with reports in October 2026 of an agreement ahead of a planned summit. A link would need a formal agreement and implementing legislation on both sides before it takes effect. It is expected to bring mutual exemption from each other's CBAM and closer price alignment, but until it is in force the schemes operate separately. Businesses should keep contracts flexible enough to deal with either outcome.
04Are carbon credits property under English law?
The answer depends on the type of credit and the registry rules. English law increasingly recognises that some intangible and digital assets can be property even though they are neither physical goods nor conventional debts or rights of action. For carbon credits, the registry terms, the standard's rules and the contract all affect whether a buyer has a proprietary interest, which matters for security, insolvency and recovery. Contracts should define the asset precisely and address title and transfer.
05Can we say our products are carbon neutral if we buy offsets?
You can only make the claim if it is clear, accurate and can be substantiated. UK regulators view offset-based claims cautiously, and the CMA can now fine businesses directly for consumer law breaches. Explain what the credits do, which standard they meet and what emissions they relate to, and avoid absolute or vague claims. For FCA-regulated firms, the anti-greenwashing rule applies to sustainability references in communications. Keep evidence on file and review claims whenever standards, guidance or your emissions profile changes.
06Do shipowners or charterers pay UK ETS costs?
Under the UK ETS maritime rules, the responsible maritime operator is usually the registered owner, although an ISM company can take on the role under a written agreement with the required evidence. The scheme does not decide who bears the commercial cost between owners and charterers. That depends on the charterparty. Without a clause dealing with emissions allowances, the owner as the regulated person is likely to bear the cost, so owners should negotiate pass-through provisions on time and voyage charters and deal with allowances on vessel sales.
07Do we need FCA authorisation to trade UK allowances?
Possibly. UK emission allowances and their derivatives are financial instruments, so dealing in them as a business, arranging trades or advising others can be regulated activities. Compliance entities trading for their own account to meet their obligations often rely on exemptions, but brokers, trading desks serving clients and platforms usually need permissions. The market abuse regime applies to allowances too, covering inside information and manipulation. A perimeter analysis before launching a trading activity is the safest course.
Sources and official materials
- The Greenhouse Gas Emissions Trading Scheme Order 2020 — Legal basis of the UK ETS
- Climate Change Act 2008 — Framework and trading scheme powers
- Participating in the UK Emissions Trading Scheme (UK ETS) — Government guidance for participants
- Taking part in the UK Emissions Trading Scheme markets — Auctions, registry and secondary markets
- Voluntary carbon and nature markets: raising integrity — 2025 consultation and 2026 summary of responses
General information only, current as at 21 October 2026. It is not legal advice and does not create a solicitor–client relationship. It reflects the law of England and Wales unless stated otherwise; Scotland and Northern Ireland have separate legal systems, and the law changes frequently. Check current official sources and take advice on the facts of your matter.