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.

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.

European Parliament declares Climate Emergency (EU)

Ahead of the UN COP25 Climate Change Conference in Madrid 2-13 December, the European Parliament has today approved a resolution declaring a climate and environmental emergency in Europe and globally.

The adopted resolution will be available here.

The European Parliament also wants the European Commission to ensure that all relevant legislative and budgetary proposals are fully aligned with the objective of limiting global warming to under 1.5 °C.

In a separate resolution, the European Parliament urges the EU to submit its strategy to reach climate neutrality as soon as possible, and by 2050 at the latest, to the UN Convention on Climate Change. This adopted resolution will be available via the above link.

Members of the European Parliament (MEPs) also call on the new European Commission President Ursula von der Leyen to include a 55% reduction target of greenhouse gas emissions by 2030 in the European Green Deal.

In addition, MEPs say that all countries should include emissions from international shipping and aviation in their national contributions plans (NDCs), and they urge the European Commission to propose that the maritime sector be included in the EU’s Emissions Trading System (EUETS).

Note – the European Commission has already proposed the goal of net-zero emissions by 2050, but the European Council has not endorsed it as some Member States are opposed.