The Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 3) Regulations 2019 (SI 2019/1440)
Commencement: 21st November 2019
Amends: The Greenhouse Gas Emissions Trading Scheme Regulations 2012
The Greenhouse Gas Emissions Trading Scheme Regulations 2012 complete the UK’s transposition of Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community (the EU ETS Directive) to improve and extend the Greenhouse Gas emission allowance trading scheme.
Please note: These Regulations and any amendments that make will be revoked on exit day as the amendments they make to EU ETS will no longer be relevant to the UK.
Following several amendments to Directive 2003/87/EC establishing a system for greenhouse gas emissions allowance trading within the Union (‘the EU ETS Directive’), these Regulations make the changes required to fully implement these changes to the EU ETS scheme in the UK.
Directive 2018/410/EU amended the EU ETS Directive to implement Phase IV of EU ETS, which takes place between 2021-2030, amendments are made to the 2012 Regulations, to mirror these changes.
The changes relating to Phase IV include the following:
- updating dates to reflect Phase IV (2021-2030) to ensure that the Regulations continue to function properly in Phase IV;
- introducing a distinction between trading periods and allocation periods;
- eliminates the requirements for regulators to review Greenhouse Gas (GHG) permits every 5 years to reduce administrative burden; and
- introduces the obligation to report on the level of compensation offered to certain sectors for the indirect costs of the EU ETS.
By the 31st March each year, the Secretary of State (SoS) must publish the total amount of compensation that has been provided in the previous scheme year for the indirect costs* incurred by electricity intensive installations in sectors at risk of carbon leakage*.
This information must be easily accessible to the public, and if the compensation amount is more than 25% of the generated revenue from the auctioning of allowances in that year, the SoS must produce a report for the reasons for exceeding the amount.
*Indirect costs means increases in electricity prices from suppliers who are passing on the cost of using their allowances to cover emissions from power generation.
*Carbon leakage, is the risk of installations moving their operations to countries outside of the scope of EU ETS where carbon legislation is more lax to reduce the financial burden. Therefore resulting in less stringent controls on their carbon emissions.
Opt out schemes
This amendment also ensure the continuation of the small emitters and hospitals opt out scheme into Phase IV, this implements Article 27 of the EU ETS Directive which reduces the regulatory burden on small emitters and avoids a competitive disadvantage as other member states have also introduced this opt out.
A new opt out is also introduced for ultra small emitters that emit less than 2 500 tonnes of carbon dioxide equivalent per year. This opt out implements Article 27a of the EU ETS Directive and further reduces the regulatory burden on small emitters.
Schedule 5A is inserted, relating to excluded Article 27A installations. This includes information on the duty to monitor emissions, and the duty to notify if emissions exceed maximum amount during an allocation period.
Clarification has been added to the legislation to state that emissions reported using Eurocontrol data are regarded as verified emissions.
The EU ETS utilises a registry, which is a platform used by the scheme which allows for the trading of allowances. Clarification is provided for anyone to become a user of the registry, applications must prove that they are a fit and proper person. Previously, this was a requirement of the regulator to prove this.
The EU ETS Directive has also been amended by 3 other Regulations which these regulations also implement:
- Regulation (EU) 2018/2066 on the monitoring and reporting of greenhouse gas emissions (the Monitoring and Reporting Regulations)
- Regulation (EU) 2018/2067 on the verification of data and on the accreditation of verifiers pursuant to Directive 2003/87/EC (the Accreditation and Verification Regulations)
- Regulation (EU) 2019/331 determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC (the Free Allocation Regulations)
References are updated to refer to these Regulations.
In accordance with the Free Allocation Regulations the competent authorities for EU ETS are confirmed as:
- Environment Agency (EA) – England
- Department of the Environment (Chief Inspector) – Northern Ireland
- Scottish Environmental Protection Agency (SEPA) – Scotland
- Natural Resource Wales (NRW) – Wales
- Secretary of State for offshore installations
For the purpose of the Accreditation and Verification Regulations, the EA is assigned as the focal point for the exchange of information, as there are multiple competent authorities in the UK.
Regulation 80 is updated by removing paragraphs 6, 11, and 12 which detailed requirements for users of the Union Registry to comply with reasonable terms and conditions.
Clarification is given to the mandatory penalty which applies where an operator has not surrendered sufficient allowances by the relevant deadline. This is calculated by reference to the emissions in the years which breaches have occurred.
If the maximum amount of emissions for an ultra small installation is exceeded, the operator is liable to a penalty if the installation exceeds the maximum amount in any scheme year. This is calculated by taking the reportable emissions arising in the scheme year from the maximum amount*, which is then multiplied by the carbon price for that year.
If a regulated activity is carried out without the necessary permit, and the operator of an Article 27a installation has exceeded the maximum amount in any scheme year and has failed to notify the regulator by 31st March in the year following the scheme, a penalty may be imposed.
The penalty is calculated by adding the estimated amount of costs avoided as a result of carrying out a regulated activity without the necessary permit to the combined total of the estimated amount of reportable emissions from the installation in the period which a regulated activity was carried out without the necessary permit and the carbon price for that year.
*The maximum amount is an amount less than 2,500 tonnes of carbon dioxide equivalent, disregarding emissions from biomass.
A permit granted under the 2005 Regulations that comes is in force before 1st January 2021 will continue to have effect until it is revoked or surrendered under these 2019 Regulations.
An excluded installation permit that is in force before 1st January 2021 continues to have effect as if it were an Article 27 installation emissions permit until it is revoked, surrendered, or varied under these 2019 Regulations.
Regulators may be required to do the following under the transitional provisions:
- the regulator must vary the content of a GHG emissions permit that is in force before the 1st January 2021 in order to comply with those requirements laid out in Schedule 4 paragraph 2
- the regulator must vary the excluded installation permit where an excluded installation is not eligible to obtain an Article 27 installation emissions permit with effect from 1st January 2021.
- the regulator may make any necessary arrangements during the transitional period to:
- vary a permit;
- grant an Article 27 installation emissions permit;
- revoke a permit; and
- vary a GHG emissions permit.
Schedule 5 is updated, replacing paragraph 4 relating to the duty to notify regulator for activities during 2020. Any operator who provided services to a hospital before 2021 and stopped services during 2020, must give notice to the regulator no later than 31st March 2021.
If an increase in the capacity of an excluded installation has occurred after the 30th June 2019, the operator may apply for an increase in the emissions targets for the installation for the following years within the first allocation period.
If a capacity increase occurs at an Article 27 installation after 30th June 2024, the operator may apply for an increase in the emissions targets for the installation for the following years within the second allocation period. This must be made by 31st December in the year of the capacity increase, or within 3 months of the date. If the capacity increase occurred before 1st January 2026, this must be made by 30th June 2026.
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