Environment | UK Regulatory Outlook January 2026

UK Emissions Trading Scheme developments

Draft order to implement free allocation and carbon leakage changes

On 16 December 2025, the draft Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026 was laid before Parliament. The order intends to amend the UK ETS to implement the remaining outcomes from the 2023 free-allocation review consultation and 2024 carbon leakage consultation. In particular, it will change how free allocations of allowances are calculated. The draft order will:

• Start to phase out the annual free allocation over the 2027-2030 allocation period for industrial installations in cement, fertilisers, iron and steel, aluminium and hydrogen sectors, which are due to be covered by the UK Carbon Border Adjustment Mechanism.
• Enable operators to choose to have their activity data from either 2020 only or 2020 and 2021 excluded from determining their historic activity level for the 2027-30 allocation period.
• Provide that existing benchmarks, which reflect the average emissions intensity of the most efficient installations in each sector, will be used to calculate free allocation in the 2027 scheme year.
• Clarify that, where an installation ceases operation in a relevant scheme year, the reporting requirement (in force from 1 January 2026) applies in the adjustment of the recalculation of free-allocation entitlements even if the installation is not a free-allocation installation at the end of the relevant scheme year.

Consultations to address the future markets policy and UK ETS cap

On 5 December 2025, the UK Emissions Trading Scheme (ETS) Authority published two consultation outcomes.

The future markets policy consultation ran until 11 March 2024, with the outcome published nearly two years later. The government has set out the final markets-policy decisions agreed by the UK ETS Authority and a summary of the responses. The following actions were determined: to retain and inflation-proof the auction reserve price and the current cost containment mechanism and to rule out introducing a quantity-triggered supply adjustment mechanism.

The cap extension consultation which ran until 9 April 2025, aimed to ensure the ETS market policies remained fit for purpose and effective in managing the risks faced by an established and maturing scheme. The results of this consultation are that the authority will extend the UK ETS beyond 2030 by introducing a phase two from 2031. This will run for 10 years from 1 January 2031 to 31 December 2040, with banking allowances to be permitted between these phases.

Developments in UK environmental policy and delivery frameworks

Environmental delivery plans under the Planning and Infrastructure Act 2025

The Planning and Infrastructure Bill 2024-25 was introduced to Parliament in March 2025 and received Royal Asset on 18 December 2025, becoming the Planning and Infrastructure Act 2025 (PIA).

Part 3 of the PIA introduces new environmental delivery plans (EDPs) that give Natural England powers to prepare and draw up EDPs for an area, which set out how the environmental impacts of development on protected sites and species will be addressed. In most cases, EDPs will be voluntary and developers can choose to participate in the plans by paying a nature-restoration levy. Where a developer chooses to participate in an EDP, it would no longer be required to carry out its own environmental assessments or deliver project-specific mitigation. The first EDPs are expected to focus specifically on mitigating nutrient pollution.

Now that the Planning and Infrastructure Bill has been finalised, developers will be paying close attention to the implementing regulations as well as the pace at which Natural England develops and rolls out EDPs, which are expected to be launched in 2026.

Government publishes the Environmental Improvement Plan 2025

On 1 December 2025, The Department for Environment, Food and Rural Affairs (Defra) published its third Environmental Improvement Plan (EIP) to secure delivery in England of the targets and objectives in the Environment Act 2021. The EIP supports 10 long-term goals designed to improve the natural environment, as well as waste and air quality targets.

Key elements of the EIP include:

• Reconfirmation of the government's intention to implement biodiversity net gain (BNG) for nationally significant infrastructure projects by May 2026, and to improve the operation of BNG for minor, medium and brownfield sites.
• Launch of the first environmental delivery plans in 2026, enabling the roll-out of the Nature Restoration Fund that will be introduced under the Planning and Infrastructure Act 2025.
• A consultation on new measures to reduce emissions from domestic combustion.
• Use of environmental outcomes reports to "better identify and manage the impact of development on air quality".

The EIP sets out a wide range of new targets and commitments which, if delivered, could significantly strengthen the environmental regulatory landscape. However, the detail on implementation in practice is limited, and businesses will need to track how these proposals are taken forward.

Marine Recovery Funds Regulations 2025 come into force

The Marine Recovery Funds Regulations came into force on 17 December 2025 to establish a new UK regulatory framework to streamline the consenting process for offshore wind projects affecting Marine Protected Areas. The voluntary scheme allows developers carrying out relevant offshore wind activities to secure appropriate compensation measures for the adverse effect of their projects on these areas.

Sustainability reporting

Potential for UK Sustainability Reporting Standards to apply to businesses on a voluntary basis

On 25 June 2025, the government published a consultation on its draft UK Sustainability Reporting Standards (SRS). The publication represents a milestone in aligning the UK framework with the inaugural sustainability disclosure standards published by the International Sustainability Standards Board.

The initial consultation closed on 17 September 2025. Once the standards are endorsed, the UK SRS are anticipated to be available initially for businesses to adopt on a voluntary basis, which is expected to be possible from the start of 2026 at the earliest. Mandatory reporting requirements are likely to target listed companies initially, although the timeframe for their introduction is not yet confirmed.

EU Sustainability Reporting requirements

See ESG section.

Biodiversity net gain

Biodiversity net gain reforms for minor, medium and brownfield development

On 16 December 2025, the Ministry of Housing Communities and Local Government (MHCLG) announced key changes to biodiversity net gain (BNG) reform. As part of the government's new consultation on reforming the National Planning Policy Framework (NPPF), the MHCLG indicated that the government will:

• Introduce an area-based exemption: smaller sites (up to 0.2 hectares) will now be exempt from mandatory BNG requirements which means more developments will not need to deliver BNG.
• Consult "rapidly" on brownfield development: a consultation for a new exemption for residential brownfield sites (testing ranges up to 2.5 hectares).
• Introduce measures for the delivery of BNG offsite: new measures to simplify offsite BNG for medium-sized developments, with the aim of reducing complexity for developers and reducing costs.

A full consultation report is expected to be published in 2026, alongside an implementation timeline and a consultation response on implementing BNG for NSIPs (which is due to go live in May 2026).

Finance Bill 2026 implementation to follow the Autumn Budget

Following the Autumn Budget in November 2025, the first resolutions for the Finance Bill were published on 4 December 2025.

Once enacted, the legislation will affect several environmental tax measures:

• Firstly, the government has confirmed that the UK plastic packaging tax (PPT) rates will increase in line with the consumer price index (CPI) inflation for 2026-2027. The tax applies to the import and production of plastic packaging containing less than 30% recycled content. The government will also consult on a mandatory certification for mechanically recycled plastic packaging, as a condition for claiming PPT exemptions. Businesses should factor the CPI-linked increase into their planning for the year ahead.
• Secondly, the government has decided not to merge the standard and lower rates of landfill tax into a single rate. The increased landfill tax rates will apply from 1 April 2026. The exemption for backfilling quarries will be retained, with the aim of maintaining low-cost alternatives to landfill for housebuilders and the wider construction sector.

Permitted development rights for electric vehicle charging consultation

As part of the Autumn Budget, the government announced a consultation on changes to permitted development rights (PDRs) for electric vehicle charging. The consultation closes on 21 January 2026.

Further changes are proposed to allow for:

• Multiple units of equipment housing or storage units for electric vehicle charge points in non-domestic, off-street car parks.
• The installation of cross-pavement solutions and associated domestic charge points.
• £100 million to be given to local authorities and public bodies to accelerate the installation of home and workplace charge points.

UK carbon border adjustment mechanism

See ESG section.

COP 30 outcomes

From 10 to 22 November 2025, the international climate conference (COP 30) was held in Belém, Brazil. The key outcome of the conference was the Mutirão Decision that proposed actions to maintain plans to combat climate change in line with the 2015 Paris Agreement, climate finance and aligning global trade with climate objectives. This decision includes:

• The Global Implementation Accelerator: a voluntary incentive to accelerate implementation to keep 1.5°C as a realistic target and support countries in implementing their nationally determined contributions (NDCs) and national adaptation plans.
• The Belém Mission to 1.5: this is designed to support ambitious implementation of NDCs and NAPs.
• An agreement that by 2035 developed countries will triple adaptation finance.
• International economic co-operation, with the aim that climate change measures do not constitute trade barriers.

The outcomes of COP 30 were criticised by many developing countries and NGOs for not adequately addressing the divisions inherent in the COP process.

Although the achievements of COP 30 were limited, companies should continue to focus on climate action to ensure compliance with relevant decarbonisation legislation and to minimise the risk of litigation. 

New climate-change agreement scheme coming into force

From 1 January 2026 to 31 December 2030, eligible sectors and operators will need to enter into new climate change agreements (CCAs) with revised terms and updated targets. This is a distinct scheme, not simply an extension of the existing scheme.

CCAs are voluntary agreements under which sector associations and their members, who operate energy-intensive installations and facilities, commit to improving energy efficiency or reducing carbon emissions. In return, participants receive a reduced rate of climate change levy (CCL).

Under the new CCA scheme, targets will run to the end of 2030 and participants that meet their obligations will continue to benefit from reduced CCL rates until March 2033.

UK ETS scope expanding to include waste incineration and energy-from-waste operations

The UK ETS is set to expand to include energy-from-waste (EfW) operations within the scope of UK ETS beginning in 2028. From 1 January 2026, there will be a voluntary monitoring, reporting and verification period for in-scope waste incineration and EfW operations.

The aim of the policy is that by incorporating EfW into UK ETS, operators will invest in technology and operations that minimise waste incineration emissions. Operators are encouraged to participate in the voluntary scheme and should review their emissions and aim to reduce them where possible, ahead of the scheme being fully integrated in 2028. The expansion of the UK ETS into EfW demonstrates the government's commitment to decarbonising the waste industry. 

Environmental Permitting (Electricity Generating Stations) (Amendment) Regulations 2025 coming into force

The Environmental Permitting (Electricity Generating Stations) (Amendment) Regulations introduce a new requirement for operators of new and substantially refurbished combustion plants in England to submit a decarbonisation readiness (DR) report as part of their environmental permitting (EP) application. For applications made after 28 February 2026, the DR requirements will shift from the planning consent process into the EP regime, giving regulators greater flexibility to update and adapt those requirements in line with rapidly developing technologies.