COP26: lead up

EU Environment Ministers, Environment Council of 6 October 2021, approved conclusions setting out the EU’s position for the United Nations climate change summit (COP26) in Glasgow, UK – here.

ECOFIN (5th October 2021) conclusions on climate finance are here.

COP26 aims to bring countries together to accelerate action towards the goals of the Paris Agreement. The Paris Agreement (PA) was adopted in 2015 at the UN Climate Change Conference (COP 21) and entered into force on 4 November 2016.

It counts to date 191 countries and the European Union, and sets two main goals –

(1) limiting the global average temperature increase to well below 2°C above pre-industrial levels, and pursuing efforts to limit it to 1.5°C,

(2) adapting to the unavoidable impacts of climate change while making finance flows consistent with climate-resilient development.

The main goals of COP26 are to encourage parties to come forward with ambitious Nationally Determined Contributions (NDCs) that establish their emission reduction targets for 2030, to discuss adaptation measures, to increase climate finance and to finalise the Paris Rulebook (the detailed rules that make the Paris Agreement operational).

The state of NDCs is collated in the interim NDC Registry, the latest NDC Synthesis Report is 17th September 2021 (NDCs submitted and recorded to 30 July 2021). NDCs contain information on targets, and policies and measures for reducing national emissions and on adapting to climate change impacts.  NDCs also contain information on either the needs for, or the provision of, finance, technologies and capacity building for these actions. Countries communicate new or updated NDCs to the interim NDC Registry every five years starting in 2020. The interim NDC Registry is here.

The state of domestic mitigation measures (not country specified) is here.

An update of the key findings of the NDC Synthesis Report, which will cover updated or new NDCs submitted between 31 July and 12 October 2021, will be published on 25 October. This is to ensure that the most updated information is made available to COP26.

The September 2021 NDC Synthesis Report identified an urgent need for either –

* a significant increase in the level of ambition of NDCs between now and 2030, or

* a significant overachievement of the latest NDCs,

* or a combination of both,

in order to attain cost-optimal emission levels suggested in many of the scenarios considered by the IPCC for keeping warming well below 2 °C or limiting it to 1.5 °C.

If emissions are not reduced by 2030, they will need to be substantially reduced thereafter to compensate for the slow start on the path to net zero emissions. Net zero CO2 emissions are a prerequisite for halting warming at any level.

At COP26, parties also need to agree on the details of the so-called Art.6 that lays down rules for international carbon markets, enabling parties to trade emission reductions. In addition, parties will seek to establish a common time frame for their NDCs. Discussions at global level revolve around setting a five-year or a ten-year common time frame.

The UK (COP26 host) is making announcements currently about its domestic measures, I will blog post separately when the strategy documents are published.

Hydrogen Strategy (UK)

UPDATE (18th August) : the 121 page UK Hydrogen Strategy is here.

Four consultations are started –

(1) the business model – here,

(2) a NetZero Fund – here,

(3) a UK low carbon hydrogen standard – here,

(4) facilitating a grid conversion hydrogen heating trial – here.

The current intention is that low carbon hydrogen producers seeking government support, through a Net Zero Hydrogen Fund, and/or the Hydrogen Business Model would be required to comply with a UK low carbon hydrogen standard in order to secure support.

The standard could also be developed into a certification scheme.

The design elements of a UK low carbon hydrogen standard are expected to be finalised by early 2022, while work continues on delivery and administration considerations.

The approach in the UK will involve a mix of hydrogen production methods, including large scale gas reforming with carbon capture, utilisation, and storage (CCUS) (blue hydrogen with CCUS) and electrolytic hydrogen from low carbon electricity (green hydrogen).

Note the following are out of scope for the purpose of developing a UK low carbon hydrogen standard (and are addressed by separate BEIS work streams that are not yet reporting) –

* End use safety / quality standards e.g., regulations for use of hydrogen in transport, or regulations on hydrogen boilers,

* Gas Safety (Management) Regulations and entry standards for blending hydrogen into the gas grid,

* Standards for other (non-hydrogen) decarbonised gases,

* Wider environmental standards and regulations (e.g., water consumption, air quality) although later work on these areas is not excluded. Hydrogen producers will, in any event, need to comply with current and future regulations on air pollutants including nitrogen oxides (NOx),

* Gas quality – e.g., the Wobbe Index.

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The UK government issued this morning a press release – here – signalling its published Hydrogen Strategy which it is consulting on – but (once again as is typical of these press releases) the strategy document itself is not published (even though the press release is written using the past tense that the document is already in the public domain) nor the consultation questions.

I will update this post on the blog itself (that won’t be a second email notification, so check the blog post) when the strategy document is finally available, with a link to that document, and some comments on its content.

Here is the link to government consultations.

Here is the New Scientist take on the strategy – its link to the strategy itself sends to a 404 page not found.

Carbon Border Adjustment Mechanism (EU)

In March, the European Parliament adopted a resolution on a WTO-compatible carbon border adjustment mechanism (CBAM). WTO rules mean an imported product cannot be subject to tougher measures than products produced domestically. The EU’s March CBAM Resolution is here.

The EU’s CBAM would be part of a broader EU industrial strategy and cover all imports of products and commodities covered by the EU ETS, adding a carbon tax to the import of these products or adding a mechanism mirroring the EU ETS. The preference is for a mechanism mirroring the EU ETS – importers would buy permits for imports of certain goods – with countries of similar carbon price e.g. Norway, Liechtenstein, Iceland, and possibly Switzerland, exempted.

By 2023, and following an impact assessment, the Resolution calls for CBAM to cover the power sector and energy-intensive industrial sectors like cement, steel, aluminium, oil refinery, paper, glass, chemicals and fertilisers.

Specifically in para 10, the Resolution –

10. Reiterates that the introduction of a CBAM should be part of a package of legislative measures to ensure the swift reduction of GHG emissions deriving from EU production and consumption, in particular by scaling up energy efficiency and renewable energies; stresses that the CBAM should be coupled with policies aimed at enabling and promoting investments in low-carbon industrial processes, including through innovative financing tools, the new Circular Economy Action Plan and a broader EU industrial policy that is both environmentally ambitious and socially fair, with a view to steering a decarbonised reindustrialisation of Europe to create quality jobs at a local level and ensure the competitiveness of the European economy, while fulfilling the EU’s climate ambition and offering predictability and certainty to secure investments towards climate neutrality;

And at para 16, the Resolution –

16. Considers that in order to address the potential risk of carbon leakage [competition from countries with lax climate rules] while complying with WTO rules, the CBAM needs to charge the carbon content of imports in a way that mirrors the carbon costs paid by EU producers; stresses that carbon pricing under the CBAM should mirror the dynamic evolution of the price of EU allowances under the EU ETS while ensuring predictability and less volatility in the price of carbon; is of the opinion that importers should buy allowances from a separate pool of allowances to the EU ETS whose carbon price corresponds to that of the day of the transaction in the EU ETS; underlines that the introduction of the CBAM is only one of the measures in the implementation of the European Green Deal objectives and must also be accompanied by the necessary measures in non-ETS sectors as well as an ambitious reform of the EU ETS to ensure it delivers meaningful carbon pricing that fully respects the polluter pays principle, and to contribute to the necessary GHG emissions reduction in line with the EU’s updated 2030 climate target and 2050 net zero GHG emissions target, including by addressing the linear reduction factor, a rebasing of the cap and assessing the potential need for a carbon floor price;

And at para 32, the Resolution –

32. Acknowledges that the CBAM could be implemented either as an extension of the current regime of customs duties or as a complementary scheme within the existing EU ETS framework; emphasises that both approaches could be entirely consistent with an own resources initiative;

The European Commission is expected to present a legislative proposal on a CBAM in July 2021 as part of the European Green Deal.

In early June, the first draft of the EU’s CBAM legislative proposal became public (it ‘leaked’ essentially).

Under the current draft, importation of products covered by the CBAM would be carried out by “authorized declarants” who would lodge “CBAM declarations” annually. These declarations would reflect direct and indirect GHG emissions embedded in the imported products. Regulated entities (importers) would then surrender a corresponding amount of “CBAM certificates.”

The proposal identifies a preference for the declaration of an actual installation-specific value of the specific embedded emissions of an imported good rather than using default values. Each authorized declarant would ensure that the declared embedded emissions are verified by an independent verifier. In the situation where actual GHG emission values could not be verified—for example, as a result of the authorized declarant’s failure to submit the required information—default values would be used to determine the number of CBAM certificates to be surrendered. Default values are proposed to be set at a relatively high level corresponding to the emissions of the 10 percent worst performing sites in the EU for each of the processes involved in the production of goods.

The proposal provides for the possibility of offsetting the cost compliance with the CBAM against a carbon price paid in the country of origin of the imported good. Declarants would apply for compensation—i.e., a reduction in the number of certificates to be required—if a carbon price had already been paid in the country of origin for the embedded emissions in the imported goods.

Further details are in this Mayer Brown explainer – here, which also notes that the actual legislative proposal might be significantly altered.

I will post again when the legislative proposal is issued.

EU Eco-design & labelling rules (Britain)

The UK government has decided to introduce EU Ecodesign and Energy labelling rules for lighting products in Britain in 2021 (if there is parliamentary time).

The UK government decision is set out here, and here.

In the EU from 1 September 2021, the existing rules under Regulation (EU) No 874/2012 will be repealed and replaced by new energy labelling requirements for light sources under Regulation on energy labelling for light sources (EU) 2019/2015

The new EU rules will use a scale from A (most efficient) to G (least efficient), the new labels will give information on the energy consumption, expressed in kWh per 1000 hours and have a QR-code that links to more information in an online database.

In the EU, with the new regulation, most halogen lamps and the traditional fluorescent tube lighting, which are common in offices, will be phased-out from September 2023 onwards.

Note : the UK government earlier decided to rescale the energy labels for some energy-related products from 1 March 2021, following the EU. The legislation is not yet adjusted. The Office for Product Safety and Standards (OPSS) issued technical notices, and the UK government updated the information on gov.uk and responded to email queries from businesses. I blog posted at the time about this change. The updated guidance is found in the Brexit Guidance List on subscribers’ Cardinal Environment Limited EHS Legislation Registers & Checklists.

Note (2) : the EU rules will apply in Northern Ireland by virtue of the Northern Ireland Protocol.

Climate legislation (Ireland)

On 23 March, Ireland published its Climate Action and Low Carbon Development (Amendment) Bill 2021.

This Bill, when enacted, will amend the Climate Action and Low Carbon Development Act 2015 – to –

(1) set an objective of climate neutrality by 2050,

(2) set an interim target of a 51% reduction in GHG emissions by 2030 relative to a baseline of 2018,

(3) provide a framework for the development of enabling plans and strategies to reach the 2030 and 2050 targets as follows:

* annual climate action plans

* five-yearly long-term climate action strategies

* five-yearly climate budgets

* sectoral emissions ceilings

* a national adaption framework,

(4) make changes to the Climate Change Advisory Council including to its functions and its membership,

(5) oblige all local authorities to make individual local climate action plans,

(6) oblige climate reporting by a Minister to the Joint Oireachtas Committee,

The Bill does not propose a ban on the sale of new, and importation of, petrol and diesel vehicles by 2030 (which was included in the 2019 General Scheme of the Bill) or a ban on the importation of fracked gas and on liquified natural gas (LNG) terminals.

The Bill is here.

We will add this legislation to Cardinal Environment EHS Legislation Registers & Checklists (Ireland), when it is enacted.

European Climate Law (EU)

I blog posted before (in December) about the EU’s proposal for a European Climate Law. On 21 April, the EU’s co-legislators reached provisional agreement on the matter.

The European Climate Law will contain the EU’s commitment to reaching climate neutrality by 2050 and the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels.

Once this provisional agreement is formally approved by Parliament and Council, the European Climate Law will be published in the Official Journal of the Union and will enter into force.

Further information is here.

UK Emissions Trading System (Britain from 1st Jan)

I Email Alerted to customers carbon trading in the EU ETS system. This morning, the UK government publishes Britain will set up its own UK ETS (it had the law already in place and in force to set up the UK ETS from 1st Jan). Britain will not operate a carbon tax. Northern Ireland will continue inside the EU ETS.

The Legislation for the UK ETS is in the Brexit Consolidated Law List (see the Email Alert I issued – look in your inboxes). UK ETS law is in force, and will be included in the EHS Registers & Law Checklists from 1st Jan 2021. Existing Brexit Transition Registers also have the Carbon Tax provision, it is marked “not in force” and there is no Summary and it is not in Law Checklists.

Despite this morning’s announcement, there are still few details for UK ETS.

The announcement this morning is of the Energy White Paper – here.

The details so far (from this announcement) –

The UK ETS will be the world’s first net zero carbon cap and trade market, and a crucial step towards achieving the UK’s target for net zero carbon emissions by 2050.

The scheme is more ambitious than the EU system it replaces – from day one the cap on emissions allowed within the system will be reduced by 5%, and we will consult in due course on how to align with net zero.

I will issue a new Email Alert shortly.

This UK ETS, adds to the list of standalone UK/GB systems –

(1) UK REACH

(2) GB CLP

(3) UKCA

(4) UK ETS

European Climate Law (EU)

Today saw the publication of the conclusions of the December meeting of the European Council. On the matter of Climate Change, the European Council endorsed a binding EU target of a net domestic reduction of at least 55% in greenhouse gas emissions by 2030 compared to 1990, tasking the co-legislators to reflect this new target in the European Climate Law proposal and to adopt the latter swiftly.

The EU’s nationally determined contribution (NDC) will be updated according to the new binding target and submitted to the UNFCCC secretariat by the end of the year (ahead of COP 26 – the 2021 UN Climate Change Conference).

Information on the European Climate Law is here. (note, it’s a proposal)

Meeting Climate Change Requirements (UK from 1 Jan 2021)

On 7 July, the EU revised and updated its 1 Jan 2021 Readiness Notice on the EUETS (EU carbon trading) (previously dated 19 Dec 2018). This updated Notice is here.

Amongst the list of instructions are :

(1) Operators of stationary installations in the UK and aircraft operators where the UK is the administering EU member state – to continue holding emission allowances after 30 April 2021 – must open a trading account in the Union Registry administered by an EU Member State and move their assets to this account.

(2) They must also – ensure that their annual emission reports are verified by verifiers established in the EU and accredited by the national accreditation body of an EU Member State.

Please note the Notice also sets out specific restrictions that will apply in Northern Ireland from 1 Jan 2021.

As a result, the UK has updated (19th August) its pre-existing instructions on meeting climate change requirements (covering emissions trading, ecodesign and energy labelling) previously issued on 12 October 2018. Note: the EU does not have 1 Jan 2021 Readiness Notices on ecodesign or energy labelling (only on EMAS and the EU Ecolabel).

The UK instructions are here. I Blog posted about these instructions at the time in 2018.

Key points : (taking account of the EU Readiness Notice)

(1) UK stationary installation operators and aircraft operators will continue to have access to Operator Holding Accounts and Aircraft Operator Holding Accounts administered by the UK for 2020 compliance obligations, up to and including 30 April 2021. Access to accounts after this date may no longer be possible.

Where applicable, operators should confirm with their traders that delivery of allowances will be possible from 1 January 2021 to ensure sufficient allowances are available to enable compliance with surrender obligations for 2020 emissions.

(2) Holders of Trading Accounts, Person Holding Accounts, Person Accounts in National Kyoto Protocol Registry and Former Operator Holding Accounts in the UK section of the Union Registry should plan for a loss of registry access from 1 January 2021.

(3) Free allowances will need to be allocated by the National Administrator on or before 31 December 2020 (the end of the transition period) subject to any changes being agreed by the European Commission in a Commission decision meeting.

(4) The deadlines for UK operators participating in the EU ETS during the transition period are:

• 31 March 2021 – submit Verified Annual Emissions Report for 2020 emissions

• 30 April 2021 – surrender equivalent allowances to 2020 verified emissions

NOTE : The temporary suspension by the European Commission on the processes relating to the UK registry was lifted on 3 February 2020 and the UK commenced the process of issuing 2019 and 2020 free allocation, as well as resuming auctions. The lifting of the suspension also allowed UK stationary installation operators and aircraft operators to regain the ability to use their entitlement in the Union Registry to exchange international credits for EU ETS allowances.

(5) Account holders who use their accounts to hold and trade Certified Emission Reductions and Emission Reduction Units will continue to be able to access their accounts within the UK’s Kyoto Protocol National Registry until 1 January 2021. As of 1 January 2021 (the day following the end of the transition period), account holders will no longer have access to these accounts.

The UK government is procuring a new system to enable account holders to hold and trade Certified Emission Reductions and Emission Reduction Units, which we expect to be operational in Spring 2021. Businesses with accounts in the Kyoto Protocol National Registry should consider taking action to manage the risks created by a short gap in service before the new system is implemented. For example, affected business could consider opening an account in another country’s registry to hold and trade Certified Emission Reductions and Emission Reduction Units during this period.

EU PRODUCT DATABASE (this is not an EU Readiness Notice, so this UK information derives directly)

(1) In terms of the EU product database:

• all consumers will still have access to the ‘open’ section of the database

• however, the UK’s Market Surveillance Authorities will no longer have access to the ‘closed’ compliance section of the database.

There will be changes for UK and EU suppliers regarding the EU product database. UK and EU suppliers placing relevant energy-using products:

• on the EU market will have to enter relevant information into the database

• on the UK market will not be required, under domestic law, to enter relevant information into the database, including for those products placed on the market between 1 August 2017 and 1 January 2019 after 1 January 2021.

UK and EU suppliers must ensure that relevant energy-using products:

• placed on the UK market comply with minimum UK Ecodesign and Energy Labelling standards

• placed on the EU market comply with minimum EU Ecodesign and Energy Labelling standards

UK and EU retailers must ensure that relevant energy-using products:

• placed on the UK market comply with minimum UK Energy Labelling standards

• placed on the EU market comply with minimum EU Energy Labelling standards

RE standards – All EU ecodesign and energy labelling requirements which enter into force and apply before 31 December 2020 will have effect in the UK. Further legislation is being prepared to ensure that all of these requirements continue to function in the UK from 1 January 2021.

Please clarify any gaps e.g. verification of annual emission reports, and the specifics applying in Northern Ireland, with the UK government department BEIS.

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.