New Carbon Emissions Tax (UK)

The recent Budget 2018 announced a new Carbon Emissions Tax would be introduced from 1April 2019 in the event the UK leaves the EU at the end of March 2019 without a deal.

If the UK secures a transition/implementation period, it would remain a member of the EU Emissions Trading System (EU ETS) during this period. The UK government is continuing to develop options for long term carbon pricing, including remaining in the EU ETS; establishing a UK ETS (linked to the EU ETS or standalone) or a carbon tax.

Already published Brexit Preparedness Notices confirm the UK would be excluded from participating in the EU ETS in a ‘no deal’ scenario. This means that current participants in the EU ETS who are UK operators of installations would no longer take part in the system.

The new Carbon Emissions Tax would apply to emissions of carbon dioxide (and other greenhouse gases on a carbon equivalent basis) from UK stationary installations currently in the EU ETS. The aviation sector would not be subject to the Carbon Emissions Tax.

Details of this New Carbon Emissions Tax are here.

Initial information is here.

Note in particular :

(1) The EU ETS requires participants to obtain permits to emit and then to submit a report annually with details of their activities across the previous calendar year, from which their emissions across the period are calculated. The UK would continue to operate a permitting and reporting regime after leaving the EU ETS. Permits issued for EU ETS compliance before 29 March 2019 would remain valid for compliance with the Carbon Emissions Tax although minor amendments to permits may be necessary.

(2) Any stationary EU ETS installation currently covered by the permitting system and the emissions reporting scheme (including those in a simplified reporting scheme for small emitters and certain hospitals) would remain subject to the reporting requirements and potentially become liable to pay the tax, as would any installation that became permitted after the start of the tax.

(3) There would be no requirement for installations to register for tax or send in a tax return – all information needed to calculate tax liability and to bill the installation would be taken by HMRC from the existing IT system known as ETSWAP. The tax year would cover the same calendar year period as under the existing monitoring, reporting and verification system, with installations continuing to use ETSWAP to submit independently verified data to environmental regulators on their activities covering the period 1 January to 31 December. They would continue to do this by 31 March each year. As a result, by 30 April each year, independently verified data would continue to be available on each installation’s greenhouse gas emissions covering the previous calendar year. HMRC would use these data to generate a tax bill, which would be sent to installations in May, with payment required within a specified period agreed following consultation. Transitional arrangements would apply in the first tax year as it would cover only 9 months as a result of the tax starting part way through the year.

(4) For permit holders outside the simplified reporting scheme the tax would be based on the amount by which reported emissions exceeded an emissions allowance set for tax purposes for each installation in advance of the tax year. For 2019 and 2020, the allowance would be set at the level of free allocation of EUAs under Phase 3 of EU ETS, with an installation paying tax only if its emissions exceeded its allowance, albeit that 2019 allowances would be set at 75% of the full year level.

For power generators who receive no free allocation of EUAs under EU ETS, the allowance would be set at zero.

Installations that became permitted after the UK left the EU ETS would have no EUAs on which to base their emissions allowance – their allowance would be set in a comparable way to existing EU ETS participants.

(5) Premises covered by the simplified reporting scheme would continue to operate as they do at present except that the tax (rather than the current civil penalty) would be payable on emissions above the allowance. The allowances would be set at equivalent levels to the targets that would have been set for them under the current simplified reporting scheme.

(6) HMRC would tax emissions in excess of the emissions allowance on a carbon equivalent basis per tonne. For 1 April to 31 December 2019 the rate would be £16 per tonne. The rate for years beyond 2019 would be set at future Budgets.

(7) As the tax would be introduced from April 2019, the arrangements for the first year would differ from the arrangements set out above. The first tax period would run for only 9 months and cover the period from 1 April to 31 December 2019. As indicated above, installations’ emissions allowances for 2019 would be set at 75% of the level that would have applied had the first tax period covered 12 months. Although they would still need to monitor their emissions for the full 12 months, installations would need to submit 9 months’ activity data by 31 March 2020 covering this first tax period. Payment details for the first tax year would be confirmed after the consultation planned for 2019 but it is possible that tax bills for 2019 would be sent out later than May 2020.

(8) Legislation will be introduced in Finance Bill 2018-19 to create a new Carbon Emissions Tax, setting the scope, rate and basic structure of the tax and establishing that it would be payable only on emissions above an emissions allowance set for each installation. The Finance Bill will provide for a statutory instrument or instruments which would be laid in early 2020 following a consultation in 2019. The instrument or instruments would be wide-ranging.

(9) The government currently sets a total carbon price, created by the price of allowances from the EU ETS and the Carbon Price Support (CPS) rate per tonne of carbon dioxide (t/CO2) which tops up the EU ETS price for electricity generators. The total carbon price is designed to provide an incentive to invest in low-carbon power generation. In a ‘no deal’ exit from the EU the CPS would remain in place.

FURTHER DETAIL IS IN THE LINKED NOTE (see earlier)

New National Planning Policy Framework (England)

The long anticipated revision to the National Planning Policy Framework applicable in England has today (24th July) been published, here.

This replaces the 2012 Framework. The planning practice guidance to support the framework is also published online (here).

The Press Release is here.

The viability guidance is also updated – here.

25-yr Environment Plan (UK)

The UK issued a few moments ago, its long awaited 25-yr Environment Plan. The Plan is here.

I will update this post on the Blog here with the Plan key commitments, targets and schedules. Please note, the updates will not be sent as emails to your inbox (the original post is emailed). So make a note, to check back on the Blog post itself.

UPDATE

Pledges :

(1) eliminate avoidable plastic waste by 2042,

(2) remove exceptions in England plastic bag regulations [the latest amendment to the EU Packaging and Packing Waste Directive stipulates measures on plastic bags by end 2018, plus the European Commission’s Plastics Strategy is announced next week – I will write a separate Blog post about it],

(2)(a) consultation in a charge for single-use plastic containers,

(3) protect ancient woodland and plant more trees, a new Tree Champion to be appointed after the National Planning Policy Framework is updated,

(4) retain strong targets for wildlife, water and air,

(5) “polluter pays” and “public money for public goods” as guiding principles for future farming policy (plus subsidy reform from 2024 (2022-2024 consultation) – this may be set out in the forthcoming Brexit Agriculture Bill),

(6) sustainable drainage to make cities safer from floods – new planning guidelines,

(7) healthcare that takes advantage of green prescriptions – preventative care that can make the most of “natural health service”,

(8) nature integrated in urban communities – net nature gain in new developments (possibly via the revamp of the National Planning Policy Framework,

(9) a new Watchdog to hold government to account – a new environment body to replace the activities of the EU’s Commission and Courts (this was an earlier DEFRA announcement – see recent Blog posts – the next step is consultation),

(10) nature targets (little detail),

(11) “leave the environment in a better state than they found it”, “the goals of our 25 year environment plan are simple: clean air, clean and plentiful water, plants and animals which are thriving, and a cleaner, greener country for us all. A better world for each of us to live in and a better future for the next generation.”,

(12) a miscellany of other pledges with little attached detail.

Note : the objectives in the plan itself add relatively little to the European and international commitments the UK is already signed up to.

But : the UK is meant to achieve good ecological status for all water bodies by the mid 2020s under the EU Water Framework Directive. The commitment in this 25-yr plan to achieve good water quality “as soon as practicable” is a lesser target.

Also : there is no mention of implementation of the forthcoming EU Circular Economy amendments to six existing Waste Directives.

Plus : there is no mention of the EU “precautionary principle’, particularly relevant to chemicals.

ESOS II (UK)

ESOS is a UK law that gives effect to EU Law concerning the energy audits of large companies (an article of the Energy Efficiency Directive). An equivalent of ESOS is in place in each of the other EU-27 member state countries.

Under ESOS, large UK organisations were required to carry out ESOS energy assessments before the deadline of 5 December 2015, using one of four compliance routes:

• ESOS Energy Audit

• ISO 50001 Certification

• Display Energy Certificates

• Green Deal Assessments.

By the deadline, qualifying organisations should have carried out their energy assessment(s) and notified the Environment Agency (EA). The assessments should then be repeated at least once every 4 years.

If an organisation has a UKAS-accredited ISO 50001 certificate that covers the full scope of ESOS, then this will suffice as ESOS compliance. All organisations need to do then, is notify the EA and provide proof of compliance via that route.

However, if ISO 50001 is not used as a route to compliance, then an ESOS energy audit will be needed as the next best and most common available route to compliance.

ESOS II or ESOS 2 ?

Every four years, a new compliance period starts. The qualification date for compliance Period 2 is 31 December 2018, with proof of compliance covering the period (from 6 December 2015 to 5 December 2019) being required by 5 December 2019. This is known as ESOS II or ESOS 2. It is not a change in the law, it is a new compliance period starting.

If your organisation has chosen an ESOS energy audit as the compliance route for Period 1 then you will now have an ESOS evidence pack that will include:

• the calculation for your total energy consumption

• a list of your identified areas of significant energy consumption

• details of the energy saving opportunities identified.

However, you won’t be able to use this information to demonstrate Period 2 compliance, so this exercise will need to be repeated – see earlier for the ESOS 2 deadlines.

Alternatively, information from your first ESOS energy audit can be used as the basis for implementing an energy management system (EnMS) to allow realisation of the energy saving opportunities.

If your system is then certified to ISO 50001 during the first four years, your organisation will automatically demonstrate Period 2 ESOS compliance.

Unabated Coal Plant Closure (Britain)

Consultation on the closure of unabated coal generation in Britain by 2025 was recently held. It has been known that unabated coal generation would cease, because this had already been announced. The UK Government has now published its implementation plan today – here. This sets out the plan to realise the ceasing of unabated coal generation in Britain by 2025 (as of now, there are no coal plants in Scotland). NB: energy policy is a reserved matter in Scotland and a non-devolved matter in Wales. Energy policy is a devolved matter in Northern Ireland.

A new emissions intensity limit will be applied to generating units, of 450g CO2 per kWh of electricity generated, from 1st October 2025. This limit is broadly the emissions intensity of an unabated gas generator and is in line with the existing Emissions Performance Standard that applies to new build fossil fuel plant. The limit will be applied on a unit-by- unit basis, as proposed in the consultation. Units could meet this standard by investing to abate CO2 emissions significantly.

Note: the 450gCO2/kWh emissions intensity limit will be an instantaneous limit. This contrasts with the existing Emissions Performance Standard, which sets an annual limit on CO2 emissions from fossil fuel generators, based on their capacity and an assumed 85% annual load factor. Applying the existing Emissions Performance Standard on an annual basis could allow unabated coal units to run at relatively low load-factors and this will not be permitted.

As proposed in the consultation, to ensure that the emissions intensity limit is applied only to generating units that use coal and that there are no unintended consequences for other forms of generation, the limit will be applied to units burning any solid fossil fuel (i.e. coal, lignite, etc.), irrespective of site boundaries, and with a thermal capacity of over 300MWth. Compliance with the emissions intensity limit will be on a net CO2 basis, in that emissions from other fuels co-fired with solid fossil fuel will be included in the calculations for emission intensity. The emissions intensity limit will not apply to units that convert fully to other fuels.

To avoid the use of unsustainable biomass in units that co-fire – for the purposes of compliance with the emissions intensity limit, the net CO2 emissions from coal units co-firing with biomass will be calculated as the sum of the emissions from the coal element of the fuel diet, plus net life-cycle CO2 emissions attributable to the biomass element of the diet. It is recognised that this will have the incidental effect of increasing the relative proportion of biomass that would need to be combusted with coal in order to remain under the emissions intensity limit. This does not preclude any other biomass sustainability requirements that might be introduced in the future.

The documents published today identify that Coal is the most carbon intensive fossil fuel and that the decline in coal generation over the last few years has led to a significant reduction in the carbon intensity of the power sector. The UK Government assessment, as set out in their updated Impact Assessment, is that the closure of unabated coal plant will yield guaranteed reductions of 15MtCO2. In addition to this, reductions of harmful air pollution such as Sulphur Dioxide (SO2), Nitrogen Oxides (NOx) and particulate matter (PM) will be guaranteed. This will contribute to the improvements in air quality that are being actively pursued at national level (in response to court action also) to reduce impacts on human health and the environment.

In 2017, the UK Government published an air quality plan to reduce roadside concentrations of Nitrogen Dioxide and in 2018, the UK Government will publish a Clean Air Strategy outlining its plans to reduce emissions of air pollutants from a wide range of sources. This will be a further Blog post.

Note: the UK Prime Minister will give a speech on the topic of the Environment next week. Depending on its content, this may be a further Blog post.

The documents published that the UK government is considering the appropriate legislative vehicle for introducing the emissions intensity limit from 1 October 2025 and other measures required to implement it. As the introduction of the emissions intensity limit will prevent unabated coal units entering into the Capacity Market auctions held in late 2021/early 2022 for the 2025/26 delivery year, and subsequent auctions for delivery years beyond that, the documents state the required legislation can be expected before these 2021/22 auctions. A final Impact Assessment will be published at that time. A further Blog post may be made at that time, or this post updated. Post updates do not forward to inboxes, so please make a note to return to check this Blog post.

UK exits the EU (EU ETS)

Background 

The EU ETS is the European Union Emissions Trading System (carbon). Large polluters such as power companies and industrial firms are obliged to pay for their carbon dioxide emissions by buying carbon permits called EU Allowances. Britain is the EU’s second-largest emitter of greenhouse gases and its utilities are among the largest buyers of carbon permits. 

Article 19(1) of European Directive 2003/87/EC requires that all emission allowances issued from 1 January 2012 onwards must be held in a central Union Registry on accounts managed by the European Union Member States.

The EU system of emission allowances registries has been operational since January 2005 and provides a standardised and secure system of electronic registries which tracks the issuance, holding, transfer and cancellation of all allowances issued under the EU ETS. Initially each EU Member State had its own emissions alllowances registry. In 2012, these registries were replaced by the single Union Registry, which provides a harmonized basis to transfer allowances across the EU.

This single registry is operated and maintained by the European Commission, and national registry administrators in all 31 countries participating in the EU ETS remain the point of contact for the representatives of more than 20,000 accounts (companies or physical persons). 31 countries participate, a few more than the EU28. 

Also the allocation processes in phase 3 of the EU ETS are performed centrally in the Union Registry, both for the allocation of allowances to stationary and aircraft operators for free and for the auctioning of allowances through the common and two ‘opt-out’ auction platforms.

The legal instrument providing specific rules on the Union Registry is the Commission Regulation (EU) No 389/2013. This Regulation applies to allowances created for the EU ETS third trading period commencing on 1 January 2013 as well as for subsequent periods, annual emission allocation units and Kyoto units. It also applies to aviation allowances to be auctioned that were created for the trading period from 1 January 2012 to 31 December 2012.

Change

Known as the EU ETS Registry Regulation, Commission Regulation (EU) No 389/2013 will be amended (by EU Regulation) to Brexit safeguard the EU ETS system during the third trading period (2013-2020). The change was agreed by the European Parliament in October, and Reuters reports yesterday it is now agreed by EU Member States. The proposal document is here

The change will provide for marking and restricting the use of allowances issued by the United Kingdom as of 1 January 2018. The proposal is that marking should distinguish United Kingdom issued allowances from other allowances. The marked allowances would then no longer be able to be surrendered in order to meet compliance obligations under the EU ETS. In essence, any carbon permits (EU allowances) issued by the UK will be void from 1 January 2018

The proposed measures apply to the auctioning of ETS allowances, the issue of free allocation by the United Kingdom and the exchange of international credits for allowances, as of 1 January 2018.

A European Commission FAQ document is issued, here