EU-UK Trade and cooperation agreement (2) (UK & EU)

I updated my post this morning with the link to the UK published legal text (1,246 pages – it’s the same text in the individual sections and chapters). Look back on the blog itself.

I also updated my post this morning (online) with the link to the EU document now loaded on a dedicated website, this also includes an EU Q&A – here.

A couple of points (identified in the Q&A) –

(1) Trading under ‘FTA’ (free trade agreement) terms from 1st Jan will differ substantively to trading in EU’s Customs Union and Single Market.

In particular:

• rules of origin will apply to goods in order to qualify for preferential trade terms under the agreement;

• all imports will be subject to customs formalities and will need to comply with the rules of the importing party;

• all imports into the EU must meet all EU standards and will be subject to regulatory checks and controls for safety, health and other public policy purposes.

(2) Traders will account not only for the origin of materials used, but also if their processing took place in the territory of one of the Parties. This is called ‘full cumulation’. Exporters will be able to self-certify the origin of the goods, and will have additional flexibility in collecting documentary evidence to prove origin during the first year.

(3) The Parties will recognise each other’s ‘Authorised Economic Operators’ programmes, enabling trusted traders with this status to use certain simplifications and/or facilitations relating to security and safety in their customs operations with the customs authorities of the other Party. But there is no waiver on security and safety declarations, as this requires alignment between the Parties on security standards.

(4) From 1st Jan, the EU and the UK will be two separate regulatory and legal spaces. This means that all products exported from the EU to the UK will need to comply with UK technical regulations and will be subject to any applicable regulatory compliance checks and controls. Similarly, all products imported from the UK to the EU will need to comply with EU technical regulations and will be subject to all applicable regulatory compliance obligations, checks and controls for safety, health and other public policy purposes.

(5) Both Parties agreed on a definition of international standards that identifies the relevant international standard-setting bodies. This is intended to ensure that both sides’ domestic product standards and technical regulations are based on the same international references and are therefore compatible to the extent possible.

(6) In the field of conformity assessment, the Parties agreed to maintain simplified access to each other’s markets through, in particular, the continued use of self-certification of conformity by the manufacturer where this is currently applied in both the EU and the UK. This covers a very large share of bilateral trade.

(7) Re Automotive Products – the Parties agreed that regulatory convergence will be based on the use of the international technical standards set at UNECE (United Nations Economic Commission for Europe) level. Both Parties will accept, in their respective markets, products that are covered by a valid UN type-approval certificate.

(8) Re Medicinal Products – the Parties agreed to recognise the results of inspections carried out by the authorities of the other Party in manufacturing facilities located in the territory of the issuing authority. This will avoid unnecessary duplication of inspections of manufacturers of medicinal products to assess their compliance with Good Manufacturing Practice requirements.

(9) Re Chemicals – the Parties agreed to cooperate, while respecting each Party’s right to regulate, both bilaterally and in relevant international fora, on the assessment of hazards and risks of chemicals and the formats for documenting the results of such assessment. The Parties already implement the UN GHS and this will continue. The Parties agreed to use transparent procedures for the classification of substances and possibly to exchange non-confidential information.

(10) Re Organic Products – the Parties agreed reciprocal recognition of equivalence of the current EU and UK organic legislation and control system, for all categories of organic products. Organic products complying with EU law and certified by control bodies recognised by the EU will be accepted on the UK market and vice-versa. In view of new EU rules for organic products applying as of 1.1.2022, equivalence will be reassessed by end-2023.

(11) Re SPS – there will be no changes to EU food safety standards. UK agri-food exporters will need to meet all EU SPS import requirements and be subject to official controls carried out by Member States’ authorities at Border Control Posts. Where required, these controls will include the verification of health certificates in line with international standards. Similarly, EU agri-food exporters will need to meet all UK SPS import requirements.

The Agreement allows for either party to unilaterally decide to reduce the frequency of certain types of border import controls, taking into account the extent to which their SPS rules converge.

It also ensures a simplified process for the approval of imports, where relevant by drawing up lists of establishments that are eligible to export to the other party, based on guarantees provided by the authorities of the exporting Party.

(12) Re Northern Ireland – the EU acquis, including the Union Customs Code, legislation on goods, sanitary rules for veterinary controls (“SPS rules”), rules on agricultural production/marketing, or VAT and excise in respect of goods, will apply to all goods entering Nortern Ireland.

As a result, from 1 January, goods entering Northern Ireland from Great Britain will constitute “imports”.  This means that such goods will need to comply with EU product rules and be subject to checks and controls for safety, health and other public policy purposes, including all necessary SPS controls applicable between the EU and the UK.

An agreement in principle (under the separate Withdrawal Agreement) has been found in the following areas, amongst others: export declarations, the supply of medicines, the supply of certain chilled meats and other food products to supermarkets, and a clarification on the application of State aid under the terms of the Protocol. There are some facilitations –

For example, certain chilled meat, for which imports in the Union market are normally prohibited, will be accepted for delivery to supermarkets in Northern Ireland during a limited period of 6 months:

• Minced meat of poultry, frozen or chilled. Chilled minced meat from animals other than poultry (e.g. minced beef.

• Chilled meat preparations (e.g. sausages, meatballs, pork pies)..

• Any fresh meat, including minced meat and meat preparations, produced from triangular trade (e.g. EU meat exported to Great Britain, cut or minced in Great Britain and re-exported to Northern Ireland).

Another example is that, during a limited period of 3 months, the goods coming from Great Britain and destined for supermarkets located in Northern Ireland will be accompanied with a simplified, collective certificate covering all the goods transported in the same truck, instead of individual certificates.

During this period of time, the UK shall maintain its current EU SPS legislation for the products concerned.

The scope is limited to a restricted number of food suppliers for supermarkets which are approved by the UK authorities after demonstrating that they meet a range of trust criteria. This list of members will be established by the United Kingdom in cooperation with the European Commission before 31 December 2020 and cannot be extended after that date.

(13) Re Business Persons Mobility – the temporary movement of natural persons for business purposes (often refered to as ‘mode 4‘), the EU and the UK have agreed on a broad range of reciprocal commitments facilitating the ability of companies located in a Party to transfer certain employees, as intra-corporate transferees, to work in an associated company located in the other Party. As intra-corporate transferees constitute temporary migration, the maximum duration of such transfers is capped at three years. With respect to UK nationals transferred to the EU, this duration includes periods of mobility between Member States. This is in line with current EU practice with other third countries.

The EU-UK Agreement also facilitates the movement of “contractual service suppliers” or “independent professionals” to supply services under certain conditions. Business visitors not providing services will also be allowed short-term entry in order to carry out certain activities.

(14) Re Legal Services – the EU and its Member States, and the UK will allow lawyers from the other Party to provide legal services relating specifically to the practice of international law and the law of the country where they are authorised under their “home” title.

However, it should be noted that EU law is not considered to be international law, but instead the law of the Member State in which EU lawyers are established or hold their “home title”.

(15) Re Energy – the UK will leave the EU’s internal energy market on 1st Jan, Northern Ireland will maintain the Single Electricity Market with Ireland (Republic of Ireland) (under the separate Withdrawal Agreement). The EU and the UK have agreed to establish a new framework for their future cooperation in the energy field. The UK Energy (Electricity) Guidance was updated on Dec 24th (see the Brexit Guidance List on Cardinal Environment Registers & Checklists).

The UK also leaves the EU ETS (see the Brexit Guidance List) and Euratom.

The UK will define its own climate change targets and policies and the UK committed to implementing a system of carbon pricing as of 1 January 2021. The Parties agreed a framework for cooperation in the fight against climate change, and their ambition to achieve economy-wide climate neutrality by 2050. The Parties will give serious consideration to linking their respective carbon pricing systems in a way that preserves the integrity of these systems and provides for the possibility to increase their effectiveness, for instance by adding further sectors, such as buildings. This would be subject to an agreement to be negotiated separately in the future.

There are also agreed provisions for cooperation in the development of offshore energy, with a focus on the North Sea.

(16) Re Euratom – the Agreement contains a separate agreement between Euratom and the UK on the safe and peaceful uses of nuclear energy.

This Agreement enables:

• the supply and transfer of nuclear material, non-nuclear material, technology and equipment;

• trade and commercial cooperation relating to the nuclear fuel cycle;

• cooperation in the safe management of spent fuel and radioactive waste;

• nuclear safety and radiation protection;

• use of radioisotopes and radiation in agriculture, industry and medicine;

• geological and geophysical exploration;

• development, production, further processing and use of uranium resources.

(17) Re Rebalancing (Level Playing Field, includes OHS and ENV Standards) – the Agreement provides the possibility to apply unilateral rebalancing measures in the case of significant divergences in the areas of labour and social, environment or climate protection, or of subsidy control, where such divergences materially impact trade or investment between the Parties.

This might be relevant, for example in a situation where one Party would significantly increase its levels of protection related to labour or social standards, the environment or climate above the levels of the other Party. This may entail an increase in the costs of production and hence a competitive disadvantage.

Another example would be a situation where one Party would have a system of subsidy control that would systemically fail to prevent the adoption of trade distorting subsidies, which would provide a competitive advantage for that Party.

In such cases, a Party would be able to adopt measures to rebalance the competitive advantage of the other Party.

Each Party could also, at regular intervals and if rebalancing measures have been taken frequently or for more than 12 months, seek a review of the trade and other economic parts of the Agreeent to ensure an appropriate balance between the commitments in the Agreement on a durable basis. In this case, the Parties could negotiate and amend relevant parts of the Agreement. Any trade or economic part of the Agreement, including aviation, that would remain in place or be renegotiated would retain appropriate level playing field commitments.

(18) Re OHS and ENV – the EU and the UK agreed to uphold levels of protection in the areas reated to labour and social standards, and environment and climate.

Labour and social levels of protection cover the following areas:

• fundamental rights at work;

• occupational health and safety standards;

• fair working conditions and employment standards;

• information and consultation rights at company level; or

• restructuring of undertakings.

Environmental levels of protection include the following areas:

• industrial emissions;

• air emissions and air quality;

• nature and biodiversity conservation;

• waste management;

• the protection and preservation of the aquatic environment;

• the protection and preservation of the marine environment;

• the prevention, reduction and elimination of risks to human health or the environment arising from the production, use, release or disposal of chemical substances; or

• the management of impacts on the environment from agricultural or food production, notably through the use of antibiotics and decontaminants.

The climate level of protection applies to:

• emissions and removals of greenhouse gases covering EU’s and the UK’s respective 2030 economy-wide targets including their systems of carbon pricing; and

• the phasing-out of ozone depleting substances.

(19) Re Further OHS and ENV Provisions – the Agreement contains several guarantees in terms of environmental protection, over and above the non-regression provisions applying to environment, climate and labour and social protection. These include:

• A recognition of the shared biosphere;

• Coverage of future targets that are now in the laws of the parties – the 2030 waste recycling targets, the 2027 water targets and the 2030 air pollution ceilings;

• Full inclusion of the key environment principles, including precautionary principle, polluter pays, and integration principle;

• Full inclusion of the principles of the Aarhus Convention with modernised text, including access to justice, access to information and public participation;

• Effective co-operation mechanism foreseen between the supervisory body or bodies in the UK in terms of protection of the environment, and the Commission;

• The recognition of the relevance of procedures for evaluating the likely impact of a proposed activity on the environment, such as an environmental impact assessment or a strategic environmental assessment.

(20) Re Health/Sanitary Quality in Agri/Foods – the broad scope of the commitment on the environment refers to agricultural and food production. In addition, it specifies two important areas for the level playing field with regards to agriculture and food production, namely the use of antibiotics and decontaminants.

(21) Re Aviation – UK carriers will be able to fly across the territory of the EU without landing; make technical stops in the territory of the EU for non-traffic purposes; and carry passengers and/or cargo on any routes between a given point in the UK and a point in the EU. Also, the Agreement will permit Member States and the UK to bilaterally exchange onward travel (termed 5th freedom) rights for extra-EU all-cargo operations only (e.g. Paris-London-New York).

The Agreement defines new arrangements for the recognition of future design and environmental certificates, as well as for production organisation oversight. Existing design certificates issued under EU rules before 1 Jan will remain valid.

(22) Re Road Transport – the Agreement provides for quota-free point-to-point access for operators transporting goods by road between the EU and the UK. This means UK lorries would be able to reach the EU and return from the EU, including when not loaded. The same rights are conferred to EU hauliers travelling from any point in the EU to the UK, and back from the UK to anywhere in the UK.

UK and EU trucks will also be able to perform up to two additional operations in the other party’s territory, once they have crossed the border.

This will allow EU hauliers that carry a load to the UK to perform two cabotage operations in the UK, thus limiting the risk of having to travel back to the EU without a load. 

For UK hauliers, these additional operations can be composed of two cross-trade operations (i.e. transport operations between two Member States) or one cross-trade and one “cabotage” operation (i.e. a transport operation within two points of a single Member State). Special provisions are made in the case of Ireland, as Northern Irish hauliers will be able to perform two cabotage operations in Ireland.

ECMT holders will be able to do 3 cabotage operations.

Energy White Paper (UK)

I Blog posted this morning re the UK ETS. Publication of the UK ETS (which was already provided for in Law) is contained in the Energy White Paper (published today).

The Energy White Paper (CP 337) “Powering our Net Zero Future” is here.

It is a long document (170 pages) with many promises for consultations and targets.

A few I have singled out –

(1) significant strengthening of the Energy Performance Certificates system with an EPC target of C for domestic buildings by 2035 (and B for rented non-domestic buildings by 2030). Since most domestic properties are D or below, this is huge and will necessitate new law. Involvement of mortgage lenders is also being consulted on.

(2) re the UK ETS no further detail is given (other than is set out in my blog post this morning)

(3) an Industrial Decarbonisation Strategy to be published in Spring 2021

(4) targeting 40GW offshore wind by 2030, including 1GW floating wind, plus growing the installation of electric heat pumps from 30,000 per year to 600,000 per year by 2028

(5) commitment to make the UK continental shelf a net zero basin by 2050. This will necessitate a new legal approach

(6) commitment to join the UK to the World Bank’s ‘Zero Routine Flaring by 2030’

(7) a new strategy for the Oil & Gas Authority by end of 2020

(8) review of the Offshore Petroleum Regulator for Environment and Decommissioning

UK Emissions Trading System (Britain from 1st Jan)

I Email Alerted to customers carbon trading in the EU ETS system. This morning, the UK government publishes Britain will set up its own UK ETS (it had the law already in place and in force to set up the UK ETS from 1st Jan). Britain will not operate a carbon tax. Northern Ireland will continue inside the EU ETS.

The Legislation for the UK ETS is in the Brexit Consolidated Law List (see the Email Alert I issued – look in your inboxes). UK ETS law is in force, and will be included in the EHS Registers & Law Checklists from 1st Jan 2021. Existing Brexit Transition Registers also have the Carbon Tax provision, it is marked “not in force” and there is no Summary and it is not in Law Checklists.

Despite this morning’s announcement, there are still few details for UK ETS.

The announcement this morning is of the Energy White Paper – here.

The details so far (from this announcement) –

The UK ETS will be the world’s first net zero carbon cap and trade market, and a crucial step towards achieving the UK’s target for net zero carbon emissions by 2050.

The scheme is more ambitious than the EU system it replaces – from day one the cap on emissions allowed within the system will be reduced by 5%, and we will consult in due course on how to align with net zero.

I will issue a new Email Alert shortly.

This UK ETS, adds to the list of standalone UK/GB systems –

(1) UK REACH

(2) GB CLP

(3) UKCA

(4) UK ETS

European Climate Law (EU)

Today saw the publication of the conclusions of the December meeting of the European Council. On the matter of Climate Change, the European Council endorsed a binding EU target of a net domestic reduction of at least 55% in greenhouse gas emissions by 2030 compared to 1990, tasking the co-legislators to reflect this new target in the European Climate Law proposal and to adopt the latter swiftly.

The EU’s nationally determined contribution (NDC) will be updated according to the new binding target and submitted to the UNFCCC secretariat by the end of the year (ahead of COP 26 – the 2021 UN Climate Change Conference).

Information on the European Climate Law is here. (note, it’s a proposal)

Meeting Climate Change Requirements (UK from 1 Jan 2021)

On 7 July, the EU revised and updated its 1 Jan 2021 Readiness Notice on the EUETS (EU carbon trading) (previously dated 19 Dec 2018). This updated Notice is here.

Amongst the list of instructions are :

(1) Operators of stationary installations in the UK and aircraft operators where the UK is the administering EU member state – to continue holding emission allowances after 30 April 2021 – must open a trading account in the Union Registry administered by an EU Member State and move their assets to this account.

(2) They must also – ensure that their annual emission reports are verified by verifiers established in the EU and accredited by the national accreditation body of an EU Member State.

Please note the Notice also sets out specific restrictions that will apply in Northern Ireland from 1 Jan 2021.

As a result, the UK has updated (19th August) its pre-existing instructions on meeting climate change requirements (covering emissions trading, ecodesign and energy labelling) previously issued on 12 October 2018. Note: the EU does not have 1 Jan 2021 Readiness Notices on ecodesign or energy labelling (only on EMAS and the EU Ecolabel).

The UK instructions are here. I Blog posted about these instructions at the time in 2018.

Key points : (taking account of the EU Readiness Notice)

(1) UK stationary installation operators and aircraft operators will continue to have access to Operator Holding Accounts and Aircraft Operator Holding Accounts administered by the UK for 2020 compliance obligations, up to and including 30 April 2021. Access to accounts after this date may no longer be possible.

Where applicable, operators should confirm with their traders that delivery of allowances will be possible from 1 January 2021 to ensure sufficient allowances are available to enable compliance with surrender obligations for 2020 emissions.

(2) Holders of Trading Accounts, Person Holding Accounts, Person Accounts in National Kyoto Protocol Registry and Former Operator Holding Accounts in the UK section of the Union Registry should plan for a loss of registry access from 1 January 2021.

(3) Free allowances will need to be allocated by the National Administrator on or before 31 December 2020 (the end of the transition period) subject to any changes being agreed by the European Commission in a Commission decision meeting.

(4) The deadlines for UK operators participating in the EU ETS during the transition period are:

• 31 March 2021 – submit Verified Annual Emissions Report for 2020 emissions

• 30 April 2021 – surrender equivalent allowances to 2020 verified emissions

NOTE : The temporary suspension by the European Commission on the processes relating to the UK registry was lifted on 3 February 2020 and the UK commenced the process of issuing 2019 and 2020 free allocation, as well as resuming auctions. The lifting of the suspension also allowed UK stationary installation operators and aircraft operators to regain the ability to use their entitlement in the Union Registry to exchange international credits for EU ETS allowances.

(5) Account holders who use their accounts to hold and trade Certified Emission Reductions and Emission Reduction Units will continue to be able to access their accounts within the UK’s Kyoto Protocol National Registry until 1 January 2021. As of 1 January 2021 (the day following the end of the transition period), account holders will no longer have access to these accounts.

The UK government is procuring a new system to enable account holders to hold and trade Certified Emission Reductions and Emission Reduction Units, which we expect to be operational in Spring 2021. Businesses with accounts in the Kyoto Protocol National Registry should consider taking action to manage the risks created by a short gap in service before the new system is implemented. For example, affected business could consider opening an account in another country’s registry to hold and trade Certified Emission Reductions and Emission Reduction Units during this period.

EU PRODUCT DATABASE (this is not an EU Readiness Notice, so this UK information derives directly)

(1) In terms of the EU product database:

• all consumers will still have access to the ‘open’ section of the database

• however, the UK’s Market Surveillance Authorities will no longer have access to the ‘closed’ compliance section of the database.

There will be changes for UK and EU suppliers regarding the EU product database. UK and EU suppliers placing relevant energy-using products:

• on the EU market will have to enter relevant information into the database

• on the UK market will not be required, under domestic law, to enter relevant information into the database, including for those products placed on the market between 1 August 2017 and 1 January 2019 after 1 January 2021.

UK and EU suppliers must ensure that relevant energy-using products:

• placed on the UK market comply with minimum UK Ecodesign and Energy Labelling standards

• placed on the EU market comply with minimum EU Ecodesign and Energy Labelling standards

UK and EU retailers must ensure that relevant energy-using products:

• placed on the UK market comply with minimum UK Energy Labelling standards

• placed on the EU market comply with minimum EU Energy Labelling standards

RE standards – All EU ecodesign and energy labelling requirements which enter into force and apply before 31 December 2020 will have effect in the UK. Further legislation is being prepared to ensure that all of these requirements continue to function in the UK from 1 January 2021.

Please clarify any gaps e.g. verification of annual emission reports, and the specifics applying in Northern Ireland, with the UK government department BEIS.

Climate Change Agreements (UK)

In the Spring Budget 2020, the UK Government announced that the current Climate Change Agreements (CCA) scheme would be reopened to new entrants for a set period and extended for a further two years until March 2025.

In April 2020, the UK government consulted on its proposals for how this extension would be implemented and sought views on potential reforms were there to be a future CCA scheme beyond March 2025.

The Environment Agency is expected to certify eligible new entrant facilities from January 2021. The deadline for applications is extended to 30 November 2020.

The baseline period is to be updated. Where discrete data for 2018 is not currently available, appropriately adjusted Target Period 3 (covering 2017 and 2018) data may be used instead to estimate a 2018 baseline.

The deadline for sector organisations to submit counter proposals for agreeing sectoral targets will be extended to 30 October 2020.

The Buy-out Price will increase to £18/tCO2e for Target Period 5 (1st Jan 2021 to 31 Dec 2022). The Target Period 4 (1 Jan 2019 to 32 Dec 2020) buy-out remains at £14/tCOe.

The financial penalty price for penalties related to Target Period 5 will increase in line with the buy-out cost per tCO2e for the appropriate target period; the financial penalty will increase to be the greater of £250 or £18/tCO2e.

A short window to make some specific amendments to agreements will be opened in 2021, with separate guidance to follow on this.

The Government will look to confirm a timeline for further engagement on the future of the CCA scheme shortly.

Further information on the CCA extension to March 2025 (and the views received on the future of the CCA scheme) is found here.

The Future of Carbon Pricing (UK)

UK CRC (carbon trading based on electricity through half hourly meters) is closed. The final compliance year for participants in CRC was 2018 to 2019. A participant’s CRC registry account must be maintained until 31 March 2022 and evidence packs until 31 March 2025. The CRC regulators will continue to do compliance audits and take enforcement action where necessary until 31 March 2025.

From 1 April 2019 SECR requires many companies formerly within the scope of the CRC to report energy consumption and energy efficiency actions. They must do this as part of their annual director’s report. Subscribers with Law Checklists have a line entry for SECR, which I have asked on a number of occasions should be completed, as evidence you are on top of this requirement.

The UK Government and Devolved Administrations consulted on the future of carbon pricing in the UK after EU Exit, receiving over 130 responses from a range of stakeholders, with the majority supporting most of the proposals on the design of a UK ETS.

As a result, the UK intends to establish a UK Emissions Trading System with Phase I running from 2021- 2030, which could operate as either a linked or standalone system.

As stated in ‘The UK’s Approach to Negotiations’ the UK would be open to considering a link between any future UK Emissions Trading System (ETS) and the EU ETS (as Switzerland has done with its ETS), if it suited both sides’ interests.

As announced at Budget 2020, the UK Government will publish a consultation later this year on the design of a Carbon Emission Tax as an alternative to a UK ETS, to ensure a carbon price remains in place in all scenarios. I blog posted some time ago, that provision for a Carbon Emissions Tax is already on the statute books in a UK Finance Act.

The UK ETS will apply to energy intensive industries (EIIs), the power generation sector and aviation – covering activities involving combustion of fuels in installations with a total rated thermal input exceeding 20MW (except in installations for the incineration of hazardous or municipal waste) and sectors like refining, heavy industry and manufacturing. The proposed aviation routes include UK domestic flights, flights between the UK and Gibraltar, flights from the UK to EEA states, and flights from the UK to Switzerland once an agreement is reached.

In light of the UK’s commitment to reaching net-zero emissions by 2050, the UK ETS will show greater climate ambition from the start. As such, the cap will initially be set 5% below the UK’s notional share of the EU ETS cap for Phase IV of the EU ETS.

The Committee on Climate Change (CCC) will advise later this year on a cost-effective pathway to net-zero, as part of their advice on the Sixth Carbon Budget. The state will consult again on what an appropriate trajectory for the UK ETS cap is for the remainder of the first phase within nine months of this advice being published.

The aim is that any changes to the policy to appropriately align the cap with a net zero trajectory will be implemented by 2023 if possible and no later than January 2024, although the aim is also to give industry at least one year’s notice to provide the market with appropriate forewarning.

Auctioning will continue to be the primary means of introducing allowances into the market. To safeguard competitiveness in the UK ETS and reduce the risk of carbon leakage, a proportion of allowances will be allocated for free. Some free allowances will also be made available for new stationary entrants to the UK ETS as well as existing operators who increase their activity – these allowances will be accessible through the New Entrants Reserve. The initial UK ETS free allocation approach will be similar to that of Phase IV in order to ensure a smooth transition for participants for the 2021 launch.

In a standalone UK ETS the state will introduce a transitional Auction Reserve Price (ARP) of £15 (nominal) to ensure a minimum level of ambition and price continuity during the initial years.

A Small Emitter and Hospital Opt-Out will be implemented for installations with emissions lower than 25,000t CO2e per annum and a net-rated thermal capacity below 35MW. An Ultra-Small Emitter Exemption will be implemented for installations with emissions lower than 2,500t CO2e per annum.

International credits will not be permitted in a UK ETS at this time. This is without prejudice to ongoing reviews on how best to implement the UN global offsetting scheme, CORSIA, alongside a UK ETS.

The sections above re the UK ETS are abridged (with highlights) from the summary in the Responses Document – the document itself is here.

Environmental Taxes (UK)

The Finance Bill 2020 increases existing environmental taxes, amends the carbon emissions tax that is not commenced, and provides for a new packaging tax.

Vehicle Excise and Registration Tax

The government announced at Budget 2017 it would introduce a new regime for calculating a car’s CO2 emissions, known as the Worldwide Harmonised Light vehicles Test Procedure (WLTP). The WLTP applied from 1st September 2017. All EC certificates of conformity or UK approval certificates for new cars show CO2 emissions figures based upon the WLTP test procedure, in addition to those based upon the existing methodology (NEDC).

Schedule 1 to Vehicle Excise and Registration Act (VERA) 1994 provides the legislation for annual rates of duty. The Finance Bill 2020 amends VERA to facilitate implementation of the WLTP regime.

VERA is also amended to exempt all registered zero-emission light passenger vehicles registered from 1 April 2017 from the Vehicle Excise Duty (VED) supplement for light passenger vehicles with a list price exceeding £40,000, when their licence is renewed on or after 1 April 2020.

Air Passenger Duty (APD)

The rates for APD are set out in section 30 of the Finance Act 1994. The rates of APD for flights to Band A destinations are unchanged. Band B destination APD is increased – in force 1st April 2021.

Climate Change Levy (CCL)

The main rates of Climate Change Levy (CCL) are amended with effect from 1 April 2020. The reduced rate percentages that apply to the main rates of CCL payable by participants in the Climate Change Agreement (CCA) scheme, are also amended with effect from 1 April 2020.

The main rates of Climate Change Levy (CCL) are amended with effect from 1 April 2021. The reduced rate percentages that apply to the Climate Change Levy (CCL) main rates payable by participants in the Climate Change Agreement (CCA) scheme, are also amended with effect from 1 April 2021.

[ Budget 2016 announced that, from 1 April 2019, rates would become subject to ‘rebalancing’ to reflect changes in the fuel mix used in electricity generation. The increase in rates, from 1 April 2019, also sought to recover the tax revenues lost by closing the Carbon Reduction Commitment Energy Efficiency Scheme.

Budget 2016 announced that, alongside the rates increase from 1 April 2019, the reduced rates of CCL for qualifying businesses in the CCA scheme would be amended so that participants did not pay more in CCL than they would have if the rates were increased in line with the Retail Prices Index (RPI) as in previous years.]

[ Budget 2017 announced that in order to ensure a better consistency between portable fuels in the off-gas grid market, the CCL rate for liquefied petroleum gas (LPG) would be frozen at the 2019-20 level in the years 2020-21 and 2021-22. For this reason, the reduced rate for LPG will remain set at 23 percent for the years 2020-21 and 2021-22.]

[ Budget 2018 reaffirmed the government’s commitment to continue with the rebalancing and the CCL rates with effect from 1 April 2020 reflect this.

Budget 2018 announced the amended reduced rates for 2020-21 would limit the impact on CCA scheme participants to an RPI increase similar to that in the year 2019-20.

Budget 2018 announced the amended reduced rates for 2021 to 2022 would limit the impact on CCA scheme participants to an RPI increase.]

Landfill Tax

Sections 42(1)(a) and 42(2) of the Finance Act 1996 to increase both rates of Landfill tax (the standard and the reduced rate) in line with inflation (rounded to the nearest 5 pence). The increased rates apply to any disposal of relevant materials made (or treated as made) at a landfill site in England or Northern Ireland on or after 1 April 2020. The increased standard rate also applies from the same date to any disposal of relevant materials made (or treated as made) at an unauthorized waste site in England or Northern Ireland. The standard rate will increase to £94.15 per tonne and the lower rate to £3.00 per tonne.

Carbon Emissions Tax

Part 3 of the Finance Act 2019 (which established the Carbon Emissions Tax – not commenced) is amended. If the Government decides to use the tax as its carbon pricing policy after the Transition Period, the tax would be commenced on 1 January 2021.

The UK remains in the EU Emissions Trading System (ETS) until 31 December 2020. As set out in the UK’s Approach to Negotiations, the UK would be open to considering a link between any future UK Emissions Trading System (ETS) and the EU ETS, if it suited both sides’ interests.

In the event that there is no link agreed between a UK ETS and the EU ETS the UK would introduce an alternative carbon pricing policy.

The Government is therefore preparing both a standalone emissions trading system and a Carbon Emissions Tax.

Budget 2020 announced that legislation would be included in Finance Bill 2020 to: provide a charging power to establish a UK ETS linked to the EU ETS or a standalone UK ETS; and update the existing legislation relating to Carbon Emissions Tax.

The Finance Bill 2020 amends Finance Act 2019 to ensure that the tax would be ready to be operational from at the end of the Transition Period, if needed.

UK permit holders operating stationary installations would be set a tax emission allowance and be taxed on all emissions that exceeded this allowance on a carbon equivalent basis. The first emissions reports would cover 1 January to 31 December 2021 and the tax would be collected by HMRC annually. It is intended that the bills relating to the first reports would be issued in summer 2022. The tax would rely on data supplied by taxable installations under existing (and continuing) emissions reporting arrangements.

The EU ETS requires participants to obtain permits to emit and then to submit a report annually providing details of their activities across the previous calendar year, from which their emissions across the period are calculated. All greenhouse gas emissions are calculated on a carbon equivalent basis. The data on emissions will continue to be collected following the UK’s departure from the EU.

Much of the existing legislation supporting the EU ETS would, under a Carbon Emissions Tax, continue to provide the legal basis for the monitoring, reporting and verification of emissions, and the permitting of installations.

The Finance Bill 2020 also allows HM Treasury to make regulations which provide for the allocation of emissions allowances in return for payment under any future UK Emissions Trading System (UK ETS).

These include the powers for HM Treasury to establish a UK Emissions Trading System (ETS). This means that emissions allowances can be auctioned in any future UK ETS, as defined in regulations.

The Finance Bill 2020 also allows for the potential implementation of additional market stability mechanisms in a standalone UK ETS. As set out in the consultation, this could include a Cost Containment Mechanism (CCM) to respond to any significant short- term price spikes and an Auction Reserve Price (ARP). If implemented, the ARP would set a minimum price for which allowances can be sold at auction to provide a minimum carbon price signal.

[A response to last summer’s consultation on the Future of UK Carbon Pricing will be published over the coming months.]

Packaging Tax

The Finance Bill 2020 enables HM Revenue and Customs (HMRC) to prepare for the introduction of a tax on plastic packaging before it is formally provided for in law.

[At Budget 2018, the Government announced the introduction of a new tax on plastic packaging which has less than 30% recycled plastic.]

New – European Climate Law (EU)

The EU has today launched a Proposal for a new Regulation establishing a framework for achieving climate neutrality (European Climate Law) – here.

This new Regulation proposes a legally binding target of net zero greenhouse gas emissions by 2050, and binds the EU Institutions and the Member States to take the necessary measures at EU and national level to meet the target.

The new Regulation includes measures to keep track of progress and adjust actions accordingly, based on existing systems such as the governance process for Member States’ National Energy and Climate Plans, regular reports by the European Environment Agency, and the latest scientific evidence on climate change and its impacts.

Progress will be reviewed every five years, in line with the global stocktake exercise under the Paris Agreement.

The new Regulation also sets steps to get to the 2050 target:

• Based on a comprehensive impact assessment, the Commission will propose a new EU target for 2030 greenhouse gas emissions reductions. This part of the proposed Regulation will be amended once the impact assessment is completed.

• By June 2021, the Commission will review, and where necessary propose to revise, all relevant policy instruments to deliver the additional emissions reductions for 2030.

• The Commission proposes the adoption of a 2030-2050 EU-wide trajectory for greenhouse gas emission reductions, to measure progress and give predictability to public authorities, businesses and citizens.

• By September 2023, and every five years thereafter, the Commission will assess the consistency of EU and national measures with the climate-neutrality objective and the 2030-2050 trajectory.

• The Commission will be empowered to issue Recommendations to Member States whose actions are inconsistent with the climate-neutrality objective, and Member States will be obliged to take due account of these Recommendations or to explain their reasoning if they fail to do so.

• Member States will also be required to develop and implement adaptation strategies to strengthen resilience and reduce vulnerability to the effects of climate change.

The next step for the proposed Regulation is consideration by the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions under the ordinary legislative procedure.

Emissions Trading Systems (UK Brexit, EU, Switzerland)

As of 1 January 2020, Switzerland is the first country to link its greenhouse gas emissions trading system (SETS) with the EU emissions trading system (EU ETS).

A process that took almost 10 years, is now finalized allowing the entry into force of the entire agreement between the EU and Switzerland on the linking of their greenhouse gas emissions trading systems that was signed in Bern on 23 November 2017 (Agreement).

The EU and Switzerland operate separate greenhouse gas emissions trading systems (ETS) as part of their respective policies to tackle climate change. After the Agreement’s entry into force in 1 January 2020, the SETS is now linked to the much larger EU ETS to allow for the mutual recognition of emission allowances from the two system.

The UK, whilst in the transition period, participates in the EU ETS, and the 2018 suspension applicable to UK auctioning and issuing 2019 allowances is lifted (with access to UK registry accounts continuing). Please confirm this with BEIS.

The UK has a hitherto unused Carbon Tax on its statute books, and has closed its wider (non EU ETS) existing ETS (the CRC carbon trading system). From 1st January 2021, it could seek to continue a UK version of the EU ETS with mutual recognition of allowances between the UK and the EU systems. The linking of the (Switzerland) SETS with the EU ETS would be a reference point for such negotiations.

China, Canada, Japan, New Zealand, South Korea and the United States are operating or are developing ETSs.

Further information is in this article – here.