“Powering up Britain” & UK CBAM (UK)

Today 30th March 2023, the UK government published two documents – here

(1) “Powering up Britain: Energy Security Plan”

(2) “Powering up Britain: Net Zero Growth Plan”

And (3) a consultation on UK CBAM see below (the UK’s response to carbon leakage – caused when manufacture is moved to a less regulated jurisdiction) [an earlier Blog post covers the EU CBAM, which is nearing enactment]

The Net Zero Growth Plan responds to the Independent Review of Net Zero (Chris Skidmore MP); is the annual update against the Net Zero Strategy, both on a national and local level; responds to the Climate Change Committee’s (CCC) 2022 Annual Progress Report; and sets out the package of policies and proposals to meet carbon budgets up to carbon budget 6 in 2037.

A couple of useful confirmations – the UK government will –

* publish the full government response to the UK ETS Develop consultation; set out a long-term pathway for the UK ETS (including possible expansion of UK ETS to cover energy from waste/waste incineration and domestic maritime emissions); and work within the ETS Authority to publish it in 2023

* legislate to continue UK ETS beyond 2030 until at least 2050

* review the free allocation of ETS allowances, in the context of a UK CBAM

* extend the current Climate Change Agreements Scheme for two further years, to continue the availability of Climate Change Levy discounts for meeting energy efficiency or carbon reductions targets

* publish a consultation (later in 2023) to review the current Batteries Regulations, to consider measures to promote the recovery, reuse, or recycling of all battery chemistry types. [note the current Batteries Regulations are listed for deletion under the REUL project]

UK CBAM consultation – “Addressing carbon leakage risk to support decarbonisation” – a UK CBAM would follow the EU approach and apply to industries trading in UK ETS. Closing date is 22 June 2023. Here

A UK CBAM is one option in the consultation – the consultation covers –

(1) a carbon border adjustment mechanism (CBAM) – a tax (this is a Treasury and DESNZ consultation) – to be applied on imports to reflect the carbon emitted during production and the gap between the carbon price applied in the country of origin and the carbon price that would have applied in the UK

(2) mandatory product standards (MPS)

(3) product labeling

(4) emissions reporting

    Shell Directors Climate Risk Law Suit (Litigation)

    The NGO ClientEarth (a shareholder in Shell) has today (9th February 2023) filed a world-first lawsuit against the Board of Directors of Shell plc for failing to manage the material and foreseeable risks posed to the company by climate change.

    The lawsuit alleges Shell’s 11 directors have breached their legal duties under the UK Companies Act by failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement.

    ClientEarth’s claim is filed in the High Court of England and Wales and is supported by a group of institutional investors collectively holding more than 12 million shares in the company, and more than half a trillion US dollars (£450 billion) in total assets under management (AUM).

    In May 2021, a Dutch court ordered a net 45% reduction in group-wide emissions by the end of the 2020s. Shell has appealed the judgement, ClientEarth also alleges that the Board’s failure to fully comply with the Dutch Court’s judgment is an additional breach of its legal duties.

    ClientEarth is represented by London litigation firm Pallas Partners, and is asking the High Court for an Order which requires the Shell Board to adopt a strategy to manage climate risk in line with its duties under the Companies Act, and in compliance with the Dutch Court judgment. The High Court will decide whether to grant ClientEarth permission to bring the claim.

    The ClientEarth press release is here. It also has a link to FAQs.

    New Lighting Products MEPS (Britain)

    The UK government is consulting on changes to the 2021 Regulations on lighting products, to put in place more stringent minimum energy performance standards (MEPS) from late 2023.

    The existing rules are set out in The Ecodesign for Energy-Related Products and Energy Information (Lighting Products) Regulations 2021. The 2021 Regulations were, anyway, enacted after 31st Dec 2020 and are not part of the REUL project; but the new MEPS proposed will be more stringent than those applying to lighting products circulating in the EU.

    The current deadline to end the circulation of CE marked lighting products on the GB market (31st December 2024) would be brought forward to the date the new GB requirements come into effect.

    The consultation is here. The consultation ends on 4th April 2023.

    Budget Statement (UK)

    Yesterday 17 November 2022 saw the UK Government make a budget statement. The following are announcements of interest –

    (1) Deletion of Retained EU Law (REUL) – a bill is in progress to delete a significant body of law off the statute books by the end of 2023 (I have blog posted about this a number of times already).

    The Budget Statement asserts “the government is committed to reforming retained EU law”. The Statement states 5 areas will be reviewed over the next year, comprising “life sciences”, “green industries”, and “ advanced manufacturing” (along with “financial services”, and “digital technology”).

    In addition, the government will task Sir Patrick Vallance to advise on how to regulate “emerging technologies”.

    (2) Climate Change Levy (CCL) – the rates will be rebalanced, the CCL rate on gas will be raised, and the CCL rate on electricity will be frozen. These steps will take effect in the Finance Bill 2023. The percentage discount on the CCL main rates available through the Climate Change Agreement Scheme will be fixed at 92% for electricity and 77% for LPG. The discounts for gas and solid fuels will be adjusted to 89%.

    (3) Carbon Price Support (CPS) – CPS rates in Britain will be kept at a level equivalent to £18 per tonne of carbon dioxide in 2024-2025.

    Company Energy Saving Plans (France)

    On 29th August ’22, the French Prime Minister speaking to MEDEF (Mouvement des Entreprises de France) called for all companies to put in place an energy saving plan in September. The link is here.

    She said “In September, every company should put in place its own plan to save energy. If we act collectively, we can overcome the risk of shortages. But if each one of us fails to do our part, or if all negative outlooks come to fruition at once, we will have to impose a decrease in consumption.”

    She said she had ordered every government ministry to put in place a plan to cut 10 percent of their energy use within the next two years and she suggested each company also put in place an “energy sobriety ambassador.”

    She said corporate energy savings plans will be reviewed in October.

    We will be looking out for the legislation that will underpin this, and update French systems accordingly.

    Spain Energy Saving Plan (Spain)

    On 1st August ’22 the Spanish Council of Ministers approved a new royal decree-law setting out at Title V a “Shock Plan” for energy saving and management in air conditioning to rapidly reduce energy consumption in administrative, commercial and public buildings, as defined in the Reglamento de Instalaciones Térmicas en los Edificios (RITE).

    The instrument will have to be complied with by all administrations, both the general State administration and the regional and local ones, as well as the private sector: shops, department stores, cinemas, theaters, stations, airports, hotels and distribution centers. However, the president of the Community of Madrid has said it would not be applied in Madrid.

    The third vice president, Teresa Ribera, explained that these measures may be relaxed in the event of waves of extreme temperatures and in duly justified cases.

    The new instrument is here, scroll to Title V.

    A description is found here.

    The Spanish Government is also preparing a Contingency Plan, which will include energy saving measures and solidarity actions with the rest of the EU, which will be presented at the end of September.

    The new instrument temporarily increases the obligations for management of the real estate of public buildings; commercial establishments, such as department stores or shopping malls; cultural spaces, such as cinemas or congress centers; and infrastructure intended for the transport of people, such as stations and airports. More details:

    • These structures will have heating and cooling temperatures limited to 19 and 27 degrees Celsius respectively; building managers will have seven days from the publication of the rule to make the limitation effective, which will be in force until October 1, 2023.

    • Building managers must display on posters or screens the mandatory saving measures, and other additional ones, that reduce consumption. They will have seven days to comply and this requirement will be effective until October 1, 2023.

    • Before September 30, buildings must have automatic closing mechanisms on access doors to prevent them from being permanently open.

    • The lighting of the shop windows will have to be turned off from 10:00 p.m. This provision will also apply to public buildings that are unoccupied at the time. Seven days is given for compliance and the measures will last until October 1, 2023.

    • Those properties that have passed the energy efficiency inspection prior to January 1, 2021 must undergo an emergency review before December 31, 2022, so that all buildings with relevant boilers and air conditioning consumption have passed an inspection in the last two years.

    We will add this document to Spanish systems, at their next update.

    Hydropower Producer Reporting (Norway)

    On 13th July 2022 the oil and energy minister Terje Aasland tasked the Norwegian Directorate of Water Resources and Energy (NVE) to establish a reporting scheme for the large hydropower producers in Southern Norway. The press release is here.

    This press release states (translated) – NVE will soon send a letter to Statnett and the power producers to establish the temporary reporting scheme for storage power in the price areas in southern Norway. The reporting will give Statnett, NVE and the Ministry of Petroleum and Energy a basis for assessing whether further measures are necessary to ensure security of supply in the winter and spring period 2022-23. The reporting scheme will initially last until the summer of 2023.

    It is important that the power companies in southern Norway now withhold water that can be stored for the winter. I would like to emphasize that, as of today, there is a low probability of rationing in the spring. It is nevertheless important that we take the situation seriously. I do not want to rule out that it may be appropriate to introduce further measures, in which case it is important that the choices we make are well thought out. This reporting scheme will contribute to that, says Aasland.

    On 8 August, Terje Aasland, told the Norwegian parliament that refilling dams will be prioritised over power production when levels fall below the seasonal average.

    On 15 August, Terje Aasland gave an update – here. In this he states that the NVE has been asked to assess the scope for setting water storage restrictions in reservoirs serving hydropower plants, and Statnett has been asked to provide weekly assessments. He also states that a separate management mechanism will be established to ensure that more water is saved in the reservoirs at low water levels and that the export of power is limited in such cases.

    Relevant laws will be added to Norway systems.

    German Gas Savings Plan (Germany)

    Germany aims to cut energy use by 20% this winter. It’s government has this week adopted a set of immediate short-term and medium measures as a series of Ordinances. The measures amount to 2% to 2.5% gas savings, according to Robert Habeck, minister of economy and climate action. We will add the relevant Ordinances to systems as they are updated.

    Although Germany is required to save around 15% as per EU rules, the government estimates that 20% of gas use must be cut to make it through the coming winter without a gas shortage.

    The German Embassy has issued this image of some of the short-term energy-saving measures that came into force from yesterday (1 September) in Germany. The short term measures will last six months. The 2-year long medium term measures are planned for 1 October.

    Pension Scheme Climate Focus (UK)

    Yesterday (1st September 2022) the UK government commenced a consultation on obliging trustees of the £342bn Local Government Pension Scheme (LGPS) in England and Wales to report and address climate risks in the assets they manage. The consultation document is here.

    This continues the climate focus commenced in 2021 across the UK for larger private sector occupational pension scheme trustees. The resulting Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 (and similar in Northern Ireland) are in your systems (in ENV Energy), and there is an Audit Checklist question also. October will add an amendment to the Regulations in Britain. The statutory guidance for these obligations is here.

    [you will note that certain larger UK private companies also have climate reporting obligations, which were enhanced this year, these instruments are in your Registers, as are the Audit Checklist questions]

    After the phasing-in, in respect of the private (Occupational Pension) funds, the climate focus will extend to trustees of money purchase and non-money purchase schemes with £1bn or more in “relevant assets”. It will also include trustees of all authorised master trusts and authorised schemes (once established) providing collective money purchase benefits, in both the accumulation and decumulation phases. You are advised to re-check if the climate focus applies to the pension scheme in your organisation.

    The (Occupational Pension) statutory guidance states – “To meet the requirements imposed by the Climate Change Governance and Reporting Regulations 2021, trustees should have a good understanding of the climate-related risks and opportunities that are relevant to their scheme. Trustees should understand that as a systemic risk, climate change risk could include risks outside of the obvious sectors, including those which are both directly and indirectly affected.”

    And “Trustees have a legal duty to consider matters which are financially material to their investment decision-making. Trustees must not only consider the kinds of financial risks which might affect investments (and in the case of DB schemes, their liabilities and sponsoring employers’ covenant), they should consider where climate change, and action to address climate change, might contribute positively to anticipated returns or to reduced risk.”

    And “Climate-related risk and opportunity is one of the major categories of financial factors of which trustees need to take account. Trustees also need to take account of other risks affecting the pension scheme, in line with their fiduciary duty. As such, trustees are expected to take a proportionate approach to managing climate-related risks and opportunities. The time spent by trustees on considering climate-related risks and opportunities, should not come at the expense of considering other major risks, including financially material social and governance factors.”

    The government proposal for the LGPS scheme takes as it’s starting point the above Occupational Pension trustee obligations, but hints at extending it with more specificity on fund investment.

    For example, the consultation document points to the UK Energy Security Strategy published in April 2022 (which highlighted energy investment opportunities for the private sector to improve energy security and support the transition to clean energy). The consultation document states the LGPS has an important role to play as a major investor with a commitment to stewardship and engagement.

    The consultation document states “These proposals seek to support that approach to addressing high carbon emissions and discourage any pursuit of lower emissions through withdrawing investment from energy companies.”

    Another difference with the private sector scheme is the proposed requirements will apply to all LGPS AAs (fund managers) from 2023/24 regardless of fund size. Currently the assets held by LGPS funds range from around £0.5 billion to £25 billion with 65 funds holding less than £5 billion and 8 funds holding less than £1 billion.

    It is also proposed that data quality is a mandatory metric (for reporting). The consultation states this is in order to help the LGPS use its scale and market power to drive improvements in the quality of emissions data, which will be a critical factor in raising the quality of climate risk management.

    Statutory guidance will be produced. Consultation closes on 24th November 2022.

    National Carbon Trading System (Germany)

    The FT reports (this morning) higher inflation in Germany, and cites (amongst other components) the carbon tax introduced Jan 1 (2021).

    This Blog doesn’t often report on domestic policies in non-UK/Ireland jurisdictions. However, in this case, we comment as follows –

    A new national carbon trading system was introduced in Germany, to start Jan 1 2021. In many places, this is cited as a carbon tax. The German National Emissions Trading System sits alongside the EU ETS (and is influential in terms of possible extension of the EU ETS to transport and buildings). The new German system applies to GHG emissions from fuel distribution and supply. Fuel distributors and suppliers based in Germany are obliged to participate (there are exemptions). Specifically, the obligated parties are those that place fuels on the market include fuel wholesalers, gas suppliers or companies in the mineral oil industry that are liable to pay energy tax. For each tonne of CO2 produced by the combustion of these fuels, the party placing the fuel on the market must acquire a corresponding emissions certificate and surrender it to the DEHSt – here.

    Further information is set out – here (English).

    As you are aware, the UK national carbon trading scheme based on electricity through half hourly meters, was abolished, and the material removed from Cardinal Environment EHS Legislation Registers & Checklists.