Fuel Duties changes (UK)

CORRECTION : the Finance Act 2021 is enacted. The Finance (No. 2) Bill is being debated. The changes identified below are located in the Finance Act 2021. The text below is amended.

Yesterday 16th November, the government issued information on its proposed changes to fuel duties – here.

The taxation of hydrocarbon oils is regulated by the Hydrocarbon Oil Duties Act 1979 (HODA) and numerous Regulations. It provides a rebate on heavy oils but this rebate is not allowed for any oil that will be used as fuel for a ‘road vehicle’.

Road vehicles not allowed to use red diesel or rebated biodiesel in any circumstances, unless they are ‘excepted vehicles’ as defined in Schedule 1 to the Act. Excepted vehicles include agricultural vehicles and specialist vehicles, such as those used in construction, haulage and some manufacturing.

Biodiesel, bioblends and fuel substitutes are subject to duty if set aside for a chargeable use and rebates are provided for in specified circumstances. Heating is not a chargeable use for these fuels.

The Finance Act 2020 made changes to HODA that are not yet commenced. These relate to private pleasure craft.

The Finance Act 2021 changes HODA (not yet commenced) –

• Only ‘excepted machines’ (new Schedule 1A instead of Schedule 1) will be able to use red diesel and rebated biodiesel.

• Heating will be a chargeable use for biodiesel, bioblends and other fuel substitutes (rebated rates when used in non-commercial heating).

Companies, individuals and civil society organisations that will lose their entitlement to use red diesel will need to switch to white diesel. This will include sectors, for example, such as construction, mining and quarrying, ports, manufacturing (e.g. ceramics, steel, timber), haulage (for transport refrigeration units on lorries), road maintenance, airport operations, oil and gas extraction, plant hire, logistics and waste management.

Company Sustainability Disclosure (UK/International)

With COP26 underway a slew of announcements are being made on the topic of business disclosure of environmental impact.

UK

In October (ahead of COP26), the government responded to its consultation on mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs. The response is here. Hitherto, on 9 November 2020, the government had announced it would implement TCFD recommendations across the economy – this announcement is here.

Re the need for better alignment between SECR (UK) and TCFD (International – see below under International) requirements, HMG will consider how best to achieve that. Any changes to the SECR regime to facilitate that alignment will require a separate consultation process, and that process will run in due course, but will take into account the proposed introduction of the Sustainability Disclosures Requirements (SDR) Regime, as set out in Greening Finance: A Roadmap to Sustainable Investment published on 18th October 2021 (see below) and the requirements introduced in the June 2021 Procurement Policy Note that require mandatory Scope 3 disclosures in carbon reduction plans when bidding for major government contracts. HMG will look to implement any changes to the SECR regime by 2023. A Q&A guidance document will set out to in-scope companies and other stakeholders to what extent current SECR requirements meet TCFD recommendation 4b, regarding the disclosure of emissions. This document is not yet published.

On 18 October (ahead of COP26), the Chancellor published a roadmap setting out details of new Sustainability Disclosure Requirements applicable to businesses, pension schemes, investment products and asset managers and owners. This roadmap is here. The document focuses on the “informing” first phase (of the road map), which it states will be delivered through new economy-wide Sustainability Disclosure Requirements. Public consultation is to follow, and thereafter there will be rules.

On 3rd November (within COP26), the Chancellor announced the UK will be the first net-zero aligned financial centre. Initially this means asset managers, regulated asset owners and listed companies must publish transition plans. Standards for these transition plans are being developed. A q&a about this process is here (dated 2nd November)

International

On 3rd November (within COP26), the IFRS Foundation (the International Financial Reporting Standards Foundation, a non-for-profit incorporated in Delaware US) announced the establishment of an International Sustainability Standards Board (ISSB) to develop global baseline sustainability reporting standards. The IFRS Foundation confirmed consolidation of two sustainability reporting organisations, the Value Reporting Foundation and the Climate Disclosure Standards Board, to create a global standard-setter for sustainability disclosures for the capital markets.

The Foundation also published two prototype standards to enable the ISSB to build on existing frameworks, including the Task Force on Climate-Related Financial Disclosures (TCFD) (set up by the Financial Stability Board, an international body), when developing its standards. Standards will be subject to public consultation and can be considered for adoption by jurisdictions on a voluntary basis. Jurisdictions will have their own legal frameworks for adopting, applying or otherwise making use of international standards.

This announcement is welcomed by the UK and a number of other countries – the UK press release is here.

COP26: lead up

EU Environment Ministers, Environment Council of 6 October 2021, approved conclusions setting out the EU’s position for the United Nations climate change summit (COP26) in Glasgow, UK – here.

ECOFIN (5th October 2021) conclusions on climate finance are here.

COP26 aims to bring countries together to accelerate action towards the goals of the Paris Agreement. The Paris Agreement (PA) was adopted in 2015 at the UN Climate Change Conference (COP 21) and entered into force on 4 November 2016.

It counts to date 191 countries and the European Union, and sets two main goals –

(1) limiting the global average temperature increase to well below 2°C above pre-industrial levels, and pursuing efforts to limit it to 1.5°C,

(2) adapting to the unavoidable impacts of climate change while making finance flows consistent with climate-resilient development.

The main goals of COP26 are to encourage parties to come forward with ambitious Nationally Determined Contributions (NDCs) that establish their emission reduction targets for 2030, to discuss adaptation measures, to increase climate finance and to finalise the Paris Rulebook (the detailed rules that make the Paris Agreement operational).

The state of NDCs is collated in the interim NDC Registry, the latest NDC Synthesis Report is 17th September 2021 (NDCs submitted and recorded to 30 July 2021). NDCs contain information on targets, and policies and measures for reducing national emissions and on adapting to climate change impacts.  NDCs also contain information on either the needs for, or the provision of, finance, technologies and capacity building for these actions. Countries communicate new or updated NDCs to the interim NDC Registry every five years starting in 2020. The interim NDC Registry is here.

The state of domestic mitigation measures (not country specified) is here.

An update of the key findings of the NDC Synthesis Report, which will cover updated or new NDCs submitted between 31 July and 12 October 2021, will be published on 25 October. This is to ensure that the most updated information is made available to COP26.

The September 2021 NDC Synthesis Report identified an urgent need for either –

* a significant increase in the level of ambition of NDCs between now and 2030, or

* a significant overachievement of the latest NDCs,

* or a combination of both,

in order to attain cost-optimal emission levels suggested in many of the scenarios considered by the IPCC for keeping warming well below 2 °C or limiting it to 1.5 °C.

If emissions are not reduced by 2030, they will need to be substantially reduced thereafter to compensate for the slow start on the path to net zero emissions. Net zero CO2 emissions are a prerequisite for halting warming at any level.

At COP26, parties also need to agree on the details of the so-called Art.6 that lays down rules for international carbon markets, enabling parties to trade emission reductions. In addition, parties will seek to establish a common time frame for their NDCs. Discussions at global level revolve around setting a five-year or a ten-year common time frame.

The UK (COP26 host) is making announcements currently about its domestic measures, I will blog post separately when the strategy documents are published.

Hydrogen Strategy (UK)

UPDATE (18th August) : the 121 page UK Hydrogen Strategy is here.

Four consultations are started –

(1) the business model – here,

(2) a NetZero Fund – here,

(3) a UK low carbon hydrogen standard – here,

(4) facilitating a grid conversion hydrogen heating trial – here.

The current intention is that low carbon hydrogen producers seeking government support, through a Net Zero Hydrogen Fund, and/or the Hydrogen Business Model would be required to comply with a UK low carbon hydrogen standard in order to secure support.

The standard could also be developed into a certification scheme.

The design elements of a UK low carbon hydrogen standard are expected to be finalised by early 2022, while work continues on delivery and administration considerations.

The approach in the UK will involve a mix of hydrogen production methods, including large scale gas reforming with carbon capture, utilisation, and storage (CCUS) (blue hydrogen with CCUS) and electrolytic hydrogen from low carbon electricity (green hydrogen).

Note the following are out of scope for the purpose of developing a UK low carbon hydrogen standard (and are addressed by separate BEIS work streams that are not yet reporting) –

* End use safety / quality standards e.g., regulations for use of hydrogen in transport, or regulations on hydrogen boilers,

* Gas Safety (Management) Regulations and entry standards for blending hydrogen into the gas grid,

* Standards for other (non-hydrogen) decarbonised gases,

* Wider environmental standards and regulations (e.g., water consumption, air quality) although later work on these areas is not excluded. Hydrogen producers will, in any event, need to comply with current and future regulations on air pollutants including nitrogen oxides (NOx),

* Gas quality – e.g., the Wobbe Index.

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The UK government issued this morning a press release – here – signalling its published Hydrogen Strategy which it is consulting on – but (once again as is typical of these press releases) the strategy document itself is not published (even though the press release is written using the past tense that the document is already in the public domain) nor the consultation questions.

I will update this post on the blog itself (that won’t be a second email notification, so check the blog post) when the strategy document is finally available, with a link to that document, and some comments on its content.

Here is the link to government consultations.

Here is the New Scientist take on the strategy – its link to the strategy itself sends to a 404 page not found.

New Energy Performance Bill (UK)

A new private members’ bill is starting in the House of Lords on 21st July. The bill is titled ‘Minimum Energy Performance of Buildings Bill’. The Bill document is here.

In its policy statements, the Government has said –

• Homes should be Energy Performance Certificate (EPC) band C by 2035 where practicable, cost-effective and affordable

• All Private Rented Sector (PRS) homes should be EPC band C by 2028

• Mortgage lenders should ensure an EPC band C average for their portfolios by 2030

• The Secretary of State to take reasonable steps to assist owner occupiers to achieve EPC band C

• Non-domestic commercial lettings are to achieve EPC band B by 2030

The Bill aims to set these into law.

For a Private Members’ Bill to become law, the government has to support it (in effect take it over).

I will post again if this happens.

A Private Members’ Bill of similar title is also started in the House of Commons (text not available).

Carbon Border Adjustment Mechanism (EU)

In March, the European Parliament adopted a resolution on a WTO-compatible carbon border adjustment mechanism (CBAM). WTO rules mean an imported product cannot be subject to tougher measures than products produced domestically. The EU’s March CBAM Resolution is here.

The EU’s CBAM would be part of a broader EU industrial strategy and cover all imports of products and commodities covered by the EU ETS, adding a carbon tax to the import of these products or adding a mechanism mirroring the EU ETS. The preference is for a mechanism mirroring the EU ETS – importers would buy permits for imports of certain goods – with countries of similar carbon price e.g. Norway, Liechtenstein, Iceland, and possibly Switzerland, exempted.

By 2023, and following an impact assessment, the Resolution calls for CBAM to cover the power sector and energy-intensive industrial sectors like cement, steel, aluminium, oil refinery, paper, glass, chemicals and fertilisers.

Specifically in para 10, the Resolution –

10. Reiterates that the introduction of a CBAM should be part of a package of legislative measures to ensure the swift reduction of GHG emissions deriving from EU production and consumption, in particular by scaling up energy efficiency and renewable energies; stresses that the CBAM should be coupled with policies aimed at enabling and promoting investments in low-carbon industrial processes, including through innovative financing tools, the new Circular Economy Action Plan and a broader EU industrial policy that is both environmentally ambitious and socially fair, with a view to steering a decarbonised reindustrialisation of Europe to create quality jobs at a local level and ensure the competitiveness of the European economy, while fulfilling the EU’s climate ambition and offering predictability and certainty to secure investments towards climate neutrality;

And at para 16, the Resolution –

16. Considers that in order to address the potential risk of carbon leakage [competition from countries with lax climate rules] while complying with WTO rules, the CBAM needs to charge the carbon content of imports in a way that mirrors the carbon costs paid by EU producers; stresses that carbon pricing under the CBAM should mirror the dynamic evolution of the price of EU allowances under the EU ETS while ensuring predictability and less volatility in the price of carbon; is of the opinion that importers should buy allowances from a separate pool of allowances to the EU ETS whose carbon price corresponds to that of the day of the transaction in the EU ETS; underlines that the introduction of the CBAM is only one of the measures in the implementation of the European Green Deal objectives and must also be accompanied by the necessary measures in non-ETS sectors as well as an ambitious reform of the EU ETS to ensure it delivers meaningful carbon pricing that fully respects the polluter pays principle, and to contribute to the necessary GHG emissions reduction in line with the EU’s updated 2030 climate target and 2050 net zero GHG emissions target, including by addressing the linear reduction factor, a rebasing of the cap and assessing the potential need for a carbon floor price;

And at para 32, the Resolution –

32. Acknowledges that the CBAM could be implemented either as an extension of the current regime of customs duties or as a complementary scheme within the existing EU ETS framework; emphasises that both approaches could be entirely consistent with an own resources initiative;

The European Commission is expected to present a legislative proposal on a CBAM in July 2021 as part of the European Green Deal.

In early June, the first draft of the EU’s CBAM legislative proposal became public (it ‘leaked’ essentially).

Under the current draft, importation of products covered by the CBAM would be carried out by “authorized declarants” who would lodge “CBAM declarations” annually. These declarations would reflect direct and indirect GHG emissions embedded in the imported products. Regulated entities (importers) would then surrender a corresponding amount of “CBAM certificates.”

The proposal identifies a preference for the declaration of an actual installation-specific value of the specific embedded emissions of an imported good rather than using default values. Each authorized declarant would ensure that the declared embedded emissions are verified by an independent verifier. In the situation where actual GHG emission values could not be verified—for example, as a result of the authorized declarant’s failure to submit the required information—default values would be used to determine the number of CBAM certificates to be surrendered. Default values are proposed to be set at a relatively high level corresponding to the emissions of the 10 percent worst performing sites in the EU for each of the processes involved in the production of goods.

The proposal provides for the possibility of offsetting the cost compliance with the CBAM against a carbon price paid in the country of origin of the imported good. Declarants would apply for compensation—i.e., a reduction in the number of certificates to be required—if a carbon price had already been paid in the country of origin for the embedded emissions in the imported goods.

Further details are in this Mayer Brown explainer – here, which also notes that the actual legislative proposal might be significantly altered.

I will post again when the legislative proposal is issued.

EU Eco-design & labelling rules (Britain)

The UK government has decided to introduce EU Ecodesign and Energy labelling rules for lighting products in Britain in 2021 (if there is parliamentary time).

The UK government decision is set out here, and here.

In the EU from 1 September 2021, the existing rules under Regulation (EU) No 874/2012 will be repealed and replaced by new energy labelling requirements for light sources under Regulation on energy labelling for light sources (EU) 2019/2015

The new EU rules will use a scale from A (most efficient) to G (least efficient), the new labels will give information on the energy consumption, expressed in kWh per 1000 hours and have a QR-code that links to more information in an online database.

In the EU, with the new regulation, most halogen lamps and the traditional fluorescent tube lighting, which are common in offices, will be phased-out from September 2023 onwards.

Note : the UK government earlier decided to rescale the energy labels for some energy-related products from 1 March 2021, following the EU. The legislation is not yet adjusted. The Office for Product Safety and Standards (OPSS) issued technical notices, and the UK government updated the information on gov.uk and responded to email queries from businesses. I blog posted at the time about this change. The updated guidance is found in the Brexit Guidance List on subscribers’ Cardinal Environment Limited EHS Legislation Registers & Checklists.

Note (2) : the EU rules will apply in Northern Ireland by virtue of the Northern Ireland Protocol.

Climate legislation (Ireland)

On 23 March, Ireland published its Climate Action and Low Carbon Development (Amendment) Bill 2021.

This Bill, when enacted, will amend the Climate Action and Low Carbon Development Act 2015 – to –

(1) set an objective of climate neutrality by 2050,

(2) set an interim target of a 51% reduction in GHG emissions by 2030 relative to a baseline of 2018,

(3) provide a framework for the development of enabling plans and strategies to reach the 2030 and 2050 targets as follows:

* annual climate action plans

* five-yearly long-term climate action strategies

* five-yearly climate budgets

* sectoral emissions ceilings

* a national adaption framework,

(4) make changes to the Climate Change Advisory Council including to its functions and its membership,

(5) oblige all local authorities to make individual local climate action plans,

(6) oblige climate reporting by a Minister to the Joint Oireachtas Committee,

The Bill does not propose a ban on the sale of new, and importation of, petrol and diesel vehicles by 2030 (which was included in the 2019 General Scheme of the Bill) or a ban on the importation of fracked gas and on liquified natural gas (LNG) terminals.

The Bill is here.

We will add this legislation to Cardinal Environment EHS Legislation Registers & Checklists (Ireland), when it is enacted.

European Climate Law (EU)

I blog posted before (in December) about the EU’s proposal for a European Climate Law. On 21 April, the EU’s co-legislators reached provisional agreement on the matter.

The European Climate Law will contain the EU’s commitment to reaching climate neutrality by 2050 and the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels.

Once this provisional agreement is formally approved by Parliament and Council, the European Climate Law will be published in the Official Journal of the Union and will enter into force.

Further information is here.