By Mathew Carr
The Lords in UK parliament might approve of an order today that prevents Britain from using carbon credits produced outside the nation to meet its carbon budget for the five years through 2032.
This means emission cuts must be made domestically.
Yet, it’s interesting that the order does not impose this restriction on the EU as the larger bloc and Britain plan to remerge their CO2 markets. They split because of the 2016 vote to exit the EU in 2016.
It’s slightly cool that this is being done today, the 10th anniversary of that fateful Brexit vote.
See this from the doc on parliament’s website:
“The nature of the [British-EU carbon-market] link and the associated accounting mechanisms still have to be agreed, but excluding the EU ETS seeks to ensure that there are no restrictions on the way the UK and EU may link the two ETS markets in the future.”
Note also the UK emissions from shipping and aviation will be included in the UK carbon budget for the five years through 2037. See below.
I’m still hoping for a grand bargain for world peace that might include AI and climate regulation.
Official source documents follow
Draft Climate Change Act 2008 (Credit Limit) Order 2026
Draft Climate Change Act 2008 (International Aviation and International Shipping) Regulations 2026
1.These two instruments propose to formalise long-standing policy positions and assumptions in relation to the UK’s carbon budgets and the target to reduce greenhouse gas emissions to net zero by 2050.
2.The draft Climate Change Act 2008 (Credit Limit) Order 2026 would limit to zero the amount of overseas reductions, or avoidance, of greenhouse gas emissions that are allowed to count towards meeting the UK’s fifth Carbon Budget (CB5). Under the Climate Change Act 2008 (“the Act”), carbon budgets are set several years in advance through secondary legislation. CB5 was set in 20161 and describes the maximum level of net UK greenhouse gas emissions that are allowed in the period 2028 to 2032.
3.The Act allows the net zero target and carbon budgets to be met partly through the reduction, or the avoidance, of greenhouse gas emissions overseas, under specific circumstances. Reductions or avoidance of greenhouse emissions are referred to as units, with each unit representing one tonne of carbon dioxide equivalent. The Act requires the Government to set a limit on the net amount of carbon units that can be used towards a carbon budget 18 months before the carbon budget period begins. When setting this limit, the Government must have regard to the need for UK domestic action on climate change. The Department for Energy Security and Net Zero (DESNZ) says that the UK has met all carbon budgets to date without using overseas carbon units. Based on this and the Carbon Budget and Growth Delivery Plan published in October 2025,2 this Order would therefore set the limit on the use of overseas carbon units for CB5 at zero. The DESNZ states that this will provide investors with a “clear signal” that the emissions reductions required for CB5 will be delivered through domestic action, thereby encouraging investment in low-carbon infrastructure and supply chains in the UK.
4.The Order also proposes to exempt the EU Emissions Trading System (EU ETS) from the zero limit set by the instrument. This is to enable a potential future linking of the EU ETS and the UK Emissions Trading Scheme (UK ETS), as agreed by the UK and the EU in May 2025.3 The nature of the link and the associated accounting mechanisms still have to be agreed, but excluding the EU ETS seeks to ensure that there are no restrictions on the way the UK and EU may link the two ETS markets in the future. [emphasis added] The DESNZ says that these measures are in line with advice from the Committee on Climate Change (CCC), and that the Devolved Governments have been consulted and support the Order.
5.The draft Climate Change Act 2008 (International Aviation and International Shipping) Regulations 2026 would include the UK share of emissions from international aviation and international shipping (IAIS) in future UK carbon budgets, starting with the sixth Carbon Budget (CB6), covering the period 2033 to 2037. The DESNZ says that this formalises a policy assumption which was announced in 2021 when CB6 was set.4 The policy is line with advice from the CCC. The DESNZ says that while the Act does not require formal consultation with the Devolved Governments, their formal agreement for including IAIS was secured when CB6 was set. Both the Scottish and Welsh Governments have laid legislation to include IAIS in their own carbon budgets.
6.The DESNZ emphasises that changing the accounting framework to include IAIS emissions “does not in itself affect how we will reach our net zero target”, and that, while the instrument formalises the existing policy assumption, the exact methodology for determining the UK’s share of IAIS emissions remains to be settled. This will be done before laying the first annual statement of UK emissions for CB6, with a deadline of 31 March 2035. The Department says that the overall costs and benefits to the UK of meeting the carbon budgets, including IAIS emissions, were covered in the impact assessment for CB6.5
This analysis will be updated in the impact assessment that supports the Order setting the level of the seventh Carbon Budget, covering the period 2037 to 2042, which will be laid in May 2026.