The plain-English guide
What are carbon allowances?
A carbon allowance is a tradeable permit to emit one tonne of carbon dioxide equivalent. UK businesses meet them in two forms: the UK Allowance (UKA) under the UK Emissions Trading Scheme, and the EU Allowance (EUA) under the EU ETS.
This guide explains how the schemes work, who has to hold allowances, how the price is formed, and how the buying journey runs.
One allowance, one tonne
Each allowance carries the right to emit one tonne of CO2 equivalent during a scheme year. A business covered by an emissions trading scheme measures and verifies what it emitted, then hands back (the legal term is surrenders) one allowance for every tonne. Emit the tonne, surrender the allowance: that is the whole obligation.
Cap and trade in one paragraph: the government sets a cap, the total number of allowances issued each year, and that cap falls over time. Because the cap is lower than what covered businesses would otherwise emit, allowances are scarce. Scarcity gives them a price, and the price gives every covered business a direct financial reason to cut emissions: those who cut cheaply can sell spare allowances to those who cannot. The cap, not any individual business, guarantees the overall reduction.
Both schemes run on this mechanism. What differs is the market around it.
UKA vs EUA at a glance
Two schemes, two registries, two prices. The mechanics rhyme, but an allowance from one cannot currently settle an obligation in the other.
| UK ETS (UKA) | EU ETS (EUA) | |
|---|---|---|
| The unit | UK Allowance (UKA): the right to emit one tonne of CO2 equivalent | EU Allowance (EUA): the right to emit one tonne of CO2 equivalent |
| Running since | 1 January 2021, replacing UK participation in the EU ETS after Brexit | 2005, the world's first and largest international carbon market |
| Where it applies | The United Kingdom | The 27 EU member states plus Iceland, Liechtenstein and Norway |
| Who it covers | Regulated installations (most large industrial heat or power) and aviation operators on relevant routes | Regulated installations, intra-EEA aviation since 2012, and maritime shipping added from 2024 |
| New supply | Fortnightly auctions run by ICE Futures Europe on behalf of the UK government | Auctions on the EU's common platform, with the Market Stability Reserve managing supply |
| Quoted in | GBP per tonne | EUR per tonne (our live page shows a GBP equivalent) |
| Annual surrender deadline | 30 April | 30 September (moved from 30 April, first applying in 2024) |
The differences run deeper than a table row: registries, auction calendars, free allocation and the price history all diverge. The full comparison is in our guide to how the UK and EU emissions trading schemes compare.
Who has to hold carbon allowances
Allowances are a legal obligation for installations regulated under either scheme: most large industrial heat or power, plus aviation operators on relevant routes. The EU scheme also added maritime shipping from 2024.
Regulated installations
Most large industrial heat or power, permitted under the UK ETS or EU ETS
Aviation operators
Operators on relevant routes; intra-EEA flights covered since 2012
Maritime shipping
Added to the EU scheme from 2024 under Phase 4
Voluntary buyers
Businesses retiring allowances as part of a Scope 1 net-zero claim
If your sites are regulated you already know: the regulator issues a permit, you report verified emissions, and you surrender allowances to match. Under the UK ETS, verified emissions are reported by 31 March and allowances surrendered by 30 April each year.
Most UK businesses fall outside both schemes. Their carbon obligations are reporting ones, SECR and ESOS, which we run as a separate retainer: see our SECR and ESOS reporting services.
Voluntary retirement: allowances without the legal obligation
A growing group of buyers holds allowances they are not required to. Retiring an allowance means permanently cancelling it: every UKA or EUA retired is one that a covered emitter can no longer buy and surrender, so the retirement removes one tonne of emissions headroom from a government-run, capped scheme.
That is why some businesses use voluntary retirement as part of a Scope 1 net-zero claim: the instrument is the compliance unit of a regulated market with a transparent public price. We run a voluntary retirement workflow alongside compliance procurement, and the retirement is evidenced for your reporting.
How allowance prices are formed
Supply starts with the cap. Governments release new allowances through regular auctions: the UK's run fortnightly through ICE Futures Europe on behalf of the government, and the EU's run on its common auction platform. Auctions are the primary market, and the falling cap means fewer new allowances arrive each year.
Everything else trades in the secondary market: exchanges and brokers matching buyers and sellers of existing allowances, spot and futures. Most business buying happens here, because a secondary trade can be timed and sized to your position rather than to the auction calendar.
Demand follows emissions, so the price moves with industrial output, the weather, and the power and gas markets. In the EU scheme, the Market Stability Reserve also adjusts how many allowances come to auction. Prices change daily, so we do not quote levels here: the numbers we trade against live on the live UK ETS price page and the live EU ETS price page, with the daily settlement, the forward curve and the spread between the two schemes.
How the online journey buys them
Our UK and EU allowance desk runs as a fully online journey, which keeps execution costs lean: no broker theatre, no phone tag, one mandate covering both schemes. The desk itself lives at carbon allowances for UK businesses, and the step-by-step walk-through, registry accounts included, is in our guide on how to buy carbon allowances online. In short:
- 01
Tell us the scheme and the volume
Start an order online with the scheme (UK ETS, EU ETS or both), the volume, and whether the purchase is for compliance or voluntary retirement. The journey is digital end to end, with no phone calls required.
- 02
We quote against the live market
We hold the live forward curves via licensed feeds and advise on auction-window vs secondary-market execution. Our fee is shown alongside the underlying allowance price on every trade ticket, and trades route through regulated broker counterparties.
- 03
Execute, then surrender or retire
Allowances settle into the relevant registry account. Compliance buyers get cycle alerts ahead of the surrender deadline; voluntary buyers get the retirement evidenced for their Scope 1 net-zero claim.
Carbon allowances: the questions people ask
- Are carbon allowances the same as carbon credits?
- No. An allowance is the compliance unit of a government-run cap-and-trade scheme: the right to emit one tonne of CO2 equivalent under the UK ETS or EU ETS. A carbon credit (offset) is issued by a project that claims to have reduced or removed a tonne, and trades in voluntary markets. Only allowances can settle an ETS obligation.
- Does my business need carbon allowances?
- Only if you operate an installation regulated under the UK ETS or EU ETS, or if you choose to retire allowances voluntarily as part of a Scope 1 net-zero claim. Most UK businesses fall outside both schemes: their carbon obligations are reporting ones, such as SECR and ESOS.
- What does it mean to surrender an allowance?
- Surrendering is handing allowances back to the regulator to settle the previous year's verified emissions, one allowance per tonne. Under the UK ETS the annual deadline is 30 April; under the EU ETS it is 30 September. A surrendered allowance is cancelled and cannot be used again.
- Can a UK allowance be used in the EU ETS?
- No. The two schemes run separate registries and separate prices, and an allowance from one cannot currently be surrendered in the other. Groups with regulated sites in both markets buy UKAs and EUAs separately, which is why our desk covers both in one mandate.
Registries, deadlines, voluntary retirement and pricing mechanics are covered in the full carbon allowance FAQ.
Sort your allowance position online
Tell us the scheme and the volume; the journey runs from quote to execution without a phone call. We work for you, not the suppliers.