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.

Energy Taxes (EU)

On the 5th December, the relevant Council of the EU (government ministers of the EU) adopted conclusions of the European Commission on the EU energy taxation framework. The Council Conclusions on energy taxation are here.

The Conclusions are a response to the European Council’s call to advance work on the conditions, incentives and enabling framework to ensure a transition to a climate-neutral EU, in line with the Paris Agreement. The aim is to contribute to the policy objectives and measures to achieve the environmental, energy and climate targets for 2030, while preserving European competitiveness, and respecting member states’ rights to decide on their own energy mix.  

The energy taxation directive adopted in 2003 identifies energy products subject to harmonised rules for excise duties, sets minimum levels of taxation and lays down conditions for applying tax exemptions and reductions, ensuring the proper functioning of the internal market.

The EU now has a new regulatory framework and policy objectives in the area of climate and energy.

The Council Conclusions call on the Commission to analyse and evaluate possible options for a possible revision of the energy taxation directive. The Commission is invited to give particular consideration to the scope of the directive, minimum rates and specific tax reductions and exemptions.

In addition the Conclusions call on the Commission to update provisions, as appropriate, in order to ensure that they are practicable and provide greater certainty and clarity in its implementation, taking notably into consideration:

• the treatment of biofuels and other alternative fuels,

• the applicability of control and movement provisions to certain products, such as treatment of lubricants and designer fuels,

• new energy products and technologies,

• relevant sectors, such as aviation, taking into account their specificities and existing exemptions and international dimension,

• impacts on government revenues,

• state aid processes and rules.

The Council highlights the importance of fully assessing its proposals in terms of their economic, social and environmental costs and benefits and their implications for competitiveness, connectivity, employment and sustainable economic growth, particularly for sectors most exposed to international competition.

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.

Class Action in Consumer Protection (EU Law)

The Council of the EU today reached agreement on a draft directive on representative actions for the protection of the collective interests of consumers.

The draft directive is here.

The directive empowers qualified entities, such as consumer organisations, to seek, in addition to injunctions, also redress measures, including compensation or replacement, on behalf of a group of consumers that has been harmed by a trader in violation of one of the EU legal acts set out in an annex to the directive. These legal acts reflect recent developments in the field of consumer protection and extend to areas such as financial services, travel and tourism, energy, telecommunications and data protection, in addition to general consumer law.

Member states shall, for the purpose of representative actions for redress, be free to choose between an opt-in and an opt-out system. In an opt-in system, consumers will be required to express their wish to be represented by the qualified entity for the purpose of a particular representative action. In an opt-out system, consumers who do not wish to be represented by the qualified entity for the purpose of a particular representative action will be required to make a statement to that effect.

Member states will have 30 months from the entry into force of the directive to transpose it into national law, as well as an additional 12 months to start applying these provisions.

The directive will apply to representative actions brought after the date of application.

On the basis of the agreed text, the Council will start negotiations with the European Parliament with a view to exploring the possibility of an agreement for the swift adoption of the directive at second reading (“early second reading agreement”).

EU Eco-Design & Energy Labelling (EU)

UPDATE : these new rules are now agreed – 10 Ecodesign regulations – press release – here.

The European Commission is currently working on eleven draft Ecodesign-regulations which are aimed at ecodesign requirements for various so-called energy-consuming products (the Ecodesign-regulations), and six Energy Labels.

With these Ecodesign-regulations, the Commission focuses, among other things, on the reparability of products in order to exploit a product’s full potential. The Commission aims to do this by introducing a set of repair requirements which should be met by manufacturers and importers by April 2021, in order to be able to keep marketing their products in the European Union (EU).

The current EU Eco-Design Directive is Directive 2009/125/EC of the European Parliament and of the Council of 21 October 2009 establishing a framework for the setting of eco-design requirements for energy-related products.

It establishes a framework for minimum eco-design requirements which goods that consume energy must meet before they can be used or sold in the EU. It does not apply to transport used to carry people or goods.

KEY POINTS

(1) Eco-design requirements cover all stages of a product’s life: from raw materials, manufacturing, packaging and distribution to installation, maintenance, use and end-of life.

(2) For each phase, various environmental aspects are assessed by bodies designated by EU countries. They verify aspects such as the materials and energy consumed, expected emissions and waste and possibilities for reuse, recycling and recovery.

(3) Manufacturers must construct an ecological profile of their products and use this to consider alternative design possibilities.

(4) Products which satisfy the requirements bear the CE marking and may be sold anywhere in the EU.

The Energy Efficiency Directive 2012/27/EU amended the 2009 legislation to further promote energy efficiency. It requires national authorities to do the following –

(1) Establish an indicative national energy efficiency target.

(2) Approve a long-term strategy to renovate residential and commercial buildings.

(3) Renovate, from 1 January 2014, 3 % of the total floor area of government-owned buildings.

(4) Introduce energy efficiency obligation schemes to achieve an annual 1.5 % energy saving by final customers between 1 January 2014 and 31 December 2020.

(5) Submit large enterprises to an independent energy audit from 2016.

(6) Ensure customers are billed on their actual consumption at least once a year.

(7) Inform the Commission, by 31 December 2015, of the potential for efficient co-generation and district heating and cooling.

The energy labelling requirements for individual product groups are created under the EU’s energy labelling framework regulation, in a process coordinated by the European Commission. 16 product groups require an energy label. 

Companies can create their own labels for energy efficiency using a range of labelling tools.

The ecodesign requirements for individual product groups are created under the EU’s ecodesign directive in a process also coordinated by the European Commission.

This is a list of energy efficient products Regulations: by product group – here.

This is the notice to stakeholders re UK Exit – here.

This is a FAQ on the EU Energy Labelling Regulation – here.

This is a FAQ on the EU Eco-Design Directive – here.

This is the Link to the useful CoolProducts summary of new Law proposals (the summary has links to each proposal) – here.

UK Exit Statement – the Exit day is 31st October 2019, unless these NEW EU proposals are enacted by that date, the UK is not bound (the UK is bound by existing EU law, incorporated as EU Retained Law).

Products sold IN the EU must comply.

A BBC summary is here.

Carbon Pricing Consultation (UK Brexit)

Exit day is 31st October 2019

UPDATE : persons are invited to attend one of consultation workshops:

• London, 22 May 2019: book on Eventbrite

• Northern Ireland, Belfast, 30 May 2019*

• North Wales, Llandudno Junction, 3 June 2019

• South Wales, Swansea, 5 June 2019

• Scotland, Glasgow, 12 June 2019*

All the workshops will be available on Eventbrite. * events do not cover aviation

———-

The UK government and the devolved administrations are now seeking views (by way of consultation) on their proposals for carbon pricing after Exit. The consultation ends 12 July 2019, and the documents are here

The consultation focuses on four aspects :

(1) the design of a UK Emissions Trading System (ETS) (I posted a few days ago, that a UK ETS is a prospect)

(2) the operation of a UK ETS

(3) aviation

(4) continued UK membership of the EU ETS for Phase IV (2021-2030).

[Note: I don’t cover aviation in detail in this Blog]

A UK ETS that is linked to the EU ETS is the UK Government’s and the Devolved Administrations’ preferred carbon pricing option. This is envisaged in the Political Declaration that accompanies the Withdrawal Agreement (that is not ratified by the UK Parliament).

The view is a linked ETS would create a larger carbon market that would deliver more cost-effective emission reduction opportunities for UK businesses.

The consultation document sets out alternatives, including:

* a standalone domestic emissions trading system;

* a tax on carbon, similar to the policy described in the HMRC technical note “Carbon Emissions Tax” (and provided for in Legislation, not yet commenced – I Blog posted about this); or

* participating in Phase IV of the EU ETS.

Note : the consultation does not seek detail re a tax on carbon. But, the summary states – if necessary, responses to this consultation may be used to develop work on such an alternative.

Questions relevant to a standalone UK ETS or a tax on carbon are included. The proposals in Chapters 1-3 would be applicable for either a linked or standalone UK ETS unless clearly stated otherwise.

Chapter 1 focuses on proposals for the design of a linked or standalone UK ETS which covers: the scope in terms of gases and sectors; the cap and trajectory; the distribution of allowances; free allocation; supply flexibility; phases and reviews; the small emitter opt-out; and the ultra-small emitter exemption; and a UK industrial decarbonisation fund.

• To ensure that any UK ETS is linkable to the EU ETS, the proposal is to match the scope of a UK ETS with the scope of the EU ETS both in respect of sectors and greenhouse gases covered. Views are, in addition, sought on the potential to expand scope in later years of UK ETS operation.

• For the free allocation of allowances, the proposal is to follow broadly the free allocation methodology used in the EU ETS to provide a smooth transition for the relevant sectors and to support the potential for linking a UK ETS with the EU ETS.

• The proposals for a Small Emitter and Hospitals Opt-out Scheme and an Ultra- Small Emitter Exemption also align with the EU ETS, including setting a threshold of 25,000t CO2eq/35MW and 2,500t CO2eq respectively.

• In addition, views are sought on the possibility of monetising allowances from within the UK ETS to fund UK industrial decarbonisation.

Chapter 2 seeks views on the operation of a UK ETS.

Chapter 4 covers the scenario whereby the UK remains part of Phase IV of the EU ETS past 2020. Note: while the UK is still within the EU or within the Transition/Implementation Period, the UK has an obligation to transpose the Phase IV revisions to the EU ETS Directive into UK law before 9 October 2019.

The chapter also includes proposed Phase IV implementation features which may be incorporated within a UK ETS.

Chapter 4 seeks views on:

• The timing and method of this transposition (and further transposition arising as a result of tertiary legislation not yet agreed at EU level);

• Elements of Phase IV where the UK has discretion over whether and how to implement – most notably the opt out schemes for small emitters, which the proposal is to implement anyway as part of a linked or standalone UK ETS.

The above sets out some salient features, the reader is asked to scan the entire consultation.

[the Exit Day could change, please continue to follow this Blog]

UK Carbon Emissions Tax (UK Brexit)

I posted before about the Carbon Emissions Tax that will be applied in place of EU ETS (the EU carbon trading scheme). The UK Government issued yesterday further instructions on this Carbon Emissions Tax. These instructions are here.

UK Carbon Emissions Tax – imminent key dates

From 30 March 2019, if there is no transition, business emissions from 1 January 2019 onwards will no longer be covered by the EU ETS, so UK businesses will no longer need to surrender allowances for these emissions at the end of each year.

However, all stationary installations currently participating in the EU ETS should continue to comply with the regulations for the monitoring, reporting and verification of greenhouse gases. These regulations will underlie the new UK Carbon Emissions Tax.

The UK Carbon Emissions Tax is provided for in the Finance Act 2019 and will be introduced on 1 April 2019 – the reporting period for stationary operators will be 1 April 2019 to 31 December 2019. The 2019 tax will be set at £16 per tonne. Subject to state aid approval, the scheme to compensate energy-intensive industries for the indirect costs of the EU ETS would remain in place to compensate for the indirect emission costs of the new Carbon Emissions Tax.

The Finance Act 2019 is now added to the Brexit Law List, in Cardinal Environment EHS Legislation Registers & Law Checklists.

Accounts administered by the UK in the EU ETS allowance registry and the Kyoto Protocol registry will be blocked from the point of the UK leaving the EU. Operators wishing to retain access to their allowances after the withdrawal date should consider opening an account in another member state’s registry for this purpose, and should consider the amount of time this is likely to take. Clean Development Mechanism project developers with a UK Letter of Authority will also need a letter of approval from a different Designated National Authority.

Until further notice, the UK government will not issue or auction any 2019 EU ETS allowances. It remains possible for allowances to be purchased through the European Energy Exchange (EEX) auction platform, and on the secondary market. Operators should consider this when planning to meet 2018 compliance obligations. To make sure obligations will not be affected, the government brought forward the 2018 compliance year deadlines, published on 7 March 2018. This states that a company (in EU ETS) needs to report its 2018 emissions by 11 March 2019, and surrender allowances for those emissions by 15 March 2019.

Guidance on this was issued in October 2018 – here.

Carbon Emissions Tax (UK Brexit)

I posted before about a carbon emissions tax being introduced in the event the UK access to the EUETS (the EU Emissions Trading System) is discontinued following Brexit.

The Finance (No. 3) Bill, out for Royal Assent, makes provision for this. Once enacted, the Act will be added to the Brexit Law List (in subscribers to Cardinal Environment EHS Legislation Registers & Checklists systems).

An information note is also published, here.

This note identifies that a Carbon Emissions Tax is one option being pursued by the UK Government.

The note sets out how the new Carbon Emissions Tax would operate.

The existing CCL is unaffected.

The new Carbon Emissions Tax will come into force via separate statutory instrument.

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)

Energy Sector (UK Brexit Preparedness)

As with the Financial Sector, the UK government has advised it will issue Regulations to ‘onshore’ energy legislation. This communication is here.

Unless the forthcoming changes to energy legislation relate to the Climate Change Levy or other climate related areas, this Blog post will be the only Blog post I will write about the matter.