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.

Agriculture & Fisheries Bills (UK Brexit)

Exit day is Friday (11pm UK time)

The Brexit Agriculture Bill is already published and has a its Second Reading in February. The Brexit Fisheries Bill is being published later today.

The Agriculture Bill relates to England predominantly (and some provisions apply in Wales and Northern Ireland). It mainly deals with agriculture supports (phasing in a new changed basis for these supports that rewards nature and environmental protection), and government collection of data from economic actors in the food supply chain, in England. It enables England, Wales and Northern Ireland to set their own food marketing standards. Separate Agriculture Bills are expected in Scotland, Wales and Northern Ireland.

The Fisheries Bill is [update 30th Jan] publicised by the UK Government – it is not yet in the list of Bills. It sets up a new system for marine and coastal fisheries management, gives new powers to Devolved Governments, and includes a set of UK-wide objectives to manage fisheries stocks sustainably (and a new objective to move towards “climate-smart” fishing in UK waters). It gives new powers to the Marine Management Organisation to give advice and assistance on sustainable fisheries, marine planning, licensing and conservation overseas.

Further Blog posts will be issued on these matters in due course.

Stormont Re-Start (Northern Ireland)

Following acceptance by political parties in Northern Ireland of The New Decade, New Approach Deal, Stormont will re-start after three years.

This means restoration to full operation of all the institutions of the Belfast (Good Friday) Agreement, including the Executive, the Assembly, the North South Ministerial Council, the British-Irish Council and the British-Irish Intergovernmental Conference.

The following commitments in The New Decade, New Approach Deal are relevant for our purposes –

(1) The Executive will create an Executive Sub-Committee on Brexit.

The sub-committee will be chaired by the First Minister and deputy First Minister (or their nominated Ministerial representatives). The sub-committee will have at least one representative from each party on the Executive. As a matter of urgency the sub-committee will consider Brexit-related issues and will initiate, as soon as is practicable, an assessment of the impact of Brexit on the institutions and North/South and East/West relationships. The work of the sub-committee will be scrutinised by an Assembly Committee.

(2) The Executive will establish a central Translation Hub in the Department of Finance within three months of an agreement, in order to provide language translation services for the 9 Executive Departments, Arm’s Length Bodies, Local Government and Public Bodies.

The Assembly’s Standing Orders will also be amended to allow any person to conduct their business before the Assembly or an Assembly Committee through Irish or Ulster Scots. A simultaneous translation system will be made available in the Assembly to ensure that a person without Irish or Ulster Scots is not placed at a disadvantage.

(3) Representatives from the Northern Ireland Executive will be invited to be part of the UK delegation in any meetings of the UK-EU Specialised Committees or the Joint Committee discussing Northern Ireland specific matters which are also being attended by the Irish Government as part of the European Union’s delegation.

A powerful Joint Committee is established under the (international treaty) EU-UK Withdrawal Agreement to oversee that Agreement (for orderly UK exit from the EU). This Joint Committee will have Specialised Committees.

(4) The UK government will legislate to guarantee unfettered access for Northern Ireland’s businesses to the whole of the UK internal market, and ensure that this legislation is in force for 1 January 2021. The UK government will engage in detail with a restored Executive on measures to protect and strengthen the UK internal market.

The Deal, alongside its two annexes, represents a possible outline of a Programme for Government. The parties agree to publish, within two weeks of the restoration of the institutions, the fuller details of an agreed Programme for Government. The parties recognise that the final Programme for Government will need to be agreed by the parties who form the Executive.

Within its first month of operation, the Executive will publish a legislative programme and indicative timescales which will complement the Programme for Government.

The following are relevant Deal commitments –

(1) The Executive will make its first priority to ensure the best possible Brexit outcome for citizens and the economy, reflecting the priorities set out in the letter of August 2016 from the First Minister and deputy First Minister to the Prime Minister.

(2) The Executive will invest urgently in wastewater infrastructure (the Living With Water Programme) which is at or nearing capacity in many places across Northern Ireland, including in Belfast.

(3) The Executive will tackle climate change with a new Energy Strategy to address the immediate and longer term impacts of climate change, and set targets and actions for transition to a zero carbon society.

The parties agree that, within 3 months, the new Executive will publish a comprehensive timetable for the development and delivery of this and other strategies necessary to achieve the outcomes in the Programme for Government.

(4) The Executive will introduce legislation and targets for reducing carbon emissions in line with the Paris Climate Change Accord.

Specifically, –

* the Executive will bring forward a Climate Change Act

* the Executive will establish an independent Environmental Protection Agency

* the Executive will create a plan to eliminate plastic pollution

* the RHI (Renewable Heat Initiative) will be closed down and replaced by a scheme that cuts carbon emissions.

Please also note the statements made by the Irish Government which also summarises the Brexit supports available to border regions.

The Deal document is here.

Climate Action (Ireland)

On 17 June 2019, the Irish Government published the Climate Action Plan 2019 (CAP), which commits to bring forward a new Climate Action (Amendment) Bill for publication in Q1 2020.

The Climate Action Plan 2019 is here.

The new Bill will amend the Climate Action and Low Carbon Development Act 2015 and provide for a strengthened statutory framework for continual long-term planning. In due course this legislation will be added to subscribers’ Ireland EHS Legislation Registers & Checklists.

On 19 December 2019, the Irish Government approved the publication of the General Scheme for the Climate Action (Amendment) Bill 2019 (essentially the Heads of Terms of the new Bill).

The General Scheme for the Climate Action (Amendment) Bill 2019 is here.

The Bill aims to enshrine in law the approach outlined in the Climate Action Plan, including:

* Establishing a 2050 emissions reduction target in law (the Government has already backed the adoption of a net-zero target at EU level and says that it will continue to support this level of ambition going forward).

* Making the adoption of 5-year carbon budgets a legal requirement, starting in 2021, the Minister would bring these to the Oireachtas (Legislature) for scrutiny, if rejected they would be revised.

* Strengthening the role of the Climate Action Council in recommending the appropriate climate budget and policies, as well as requiring decarbonisation targets across all sectors, including transport, agriculture, housing and energy. The Council will replace the existing Climate Change Advisory Council that has been widely viewed as under-resourced and too heavily stocked with economists. The proposed Bill would see the Director of Met Éireann join the Council and a limit of two terms for the chairperson.

* Requiring the Government to set a decarbonisation target range for each sector. The Minister with primary responsibility for each sector will be accountable for delivering the relevant actions to meet the sectoral target and for reporting annually on the delivery of their actions and the achievement of sectoral emission targets.

* Giving the Oireachtas a central role in the setting of the carbon budget and overseeing progress to delivery (see above).

* Banning the sale of fossil fuel cars by 2030, the Bill also seeks to stop the granting of NCTs for such vehicles from 2045.

* Establishing that the Climate Action Plan shall be updated annually, with actions in every sector.

Queens Speech (UK)

Exit day is 31st January 2020 – DExEU government department will close on that day

Of relevance (for this Blog) in the Queen’s Speech today are :

(1) the Environment Bill – this will be brought back with alterations

(2) a new Fire safety and Building safety bill or bills

(3) the withdrawal agreement bill and associated Brexit bills

Please look out for further Blog posts when the bill text is published.

European Green Deal (EU)

11 December will see the incoming Commissioner (European Commission) for the Green Deal present a draft of a new environmental law (a new climate EU Law, part of the European Green Deal) to Members of the European Parliament (MEPs) ahead of the 12/13 December Council summit.

European watchers have seen a draft version of the European Green Deal (also known as “Green New Deal”) – it comprises a summary of an early draft proposal – marked “for internal use only” – that was circulated to EU countries’ national representations in Brussels in order to get some feedback. European watchers describe the draft document as more like a shopping list, filled with numerous bullet points stacked under a series of headlines.

First in the list (in the draft European Green Deal document) is Europe’s objective of reaching climate neutrality, to be achieved by a European ‘Climate Law’ enshrining the 2050 climate neutrality objective, to be submitted by March 2020.

The European Commission 2050 long-term strategy is here.

And by October 2020, the draft says, the European Commission “will present a comprehensive plan on how to increase the EU’s greenhouse gas emission reduction target for 2030 to at least 50% and towards 55%”.

The European Commission 2030 climate & energy framework is here.

Credit Euractiv for the text below in italics that gives other details –

Further down, the Commission promises “mainstreaming sustainability” into all policies, by adopting “a green oath: ‘do no harm’”. In practice, Brussels will seek to eliminate “incoherent legislation that reduces the effectiveness in delivering the Green Deal”.

This includes financial aspects with a proposal to “screen and benchmark green budgeting practices” both at EU and national level. An “action plan on green financing” will be submitted in June 2020 in this regard. A review of “state aid guidelines for environment and energy” is also on the agenda.

Other widely-anticipated initiatives include a proposal to revise the Energy Taxation Directive with a view to “align it” with Europe’s climate ambitions. And while the Commission wants to “pursue efforts” to scrap the unanimity rule on taxation, there is no mention of the announced carbon border tax meant to protect industries like steelmaking from dumped Chinese imports.

Under the “zero-emission nobility” heading, the Commission plans to extend the EU’ cap-and-trade scheme for carbon emissions, to the maritime sector and reduce the amount of free pollution credits allocated to airlines.

Brussels will also “assess the possibility of including road transport emissions” in the scheme, a proposal which has long been resisted by environmental groups. And it plans to “withdraw and resubmit” proposals on the Eurovignette directive to charge heavy-duty trucks on European roads, a proposal which is currently stuck with EU member states in the Council of Ministers.

Under the ecosystem and biodiversity preservation heading, the Commission proposes to “review all existing legislation affecting agriculture and forestry to ensure it is in line with renewed climate and biodiversity ambition”.

And under the “farm to fork” strategy, the EU executive intends to adopt “a toolbox for alternatives to pesticides” and reform food information rules “to improve consumers’ information”.

Finally, the Commission aims to review air, water and chemicals legislation with a view to “eliminating all sources of pollution.”

Further Blog posts will be issued in due course on the various matters. Please look out for them.