Greenhouse Gas Archives - Page 2 of 2

Summary
The UK Emissions Trading Scheme (UK ETS) implements the principals of emissions trading by allocating and trading greenhouse gas (GHG) emissions allowances to participants of the scheme. These Regulations set out the legal framework to allow auctioning of emissions allowances.

One allowance equals one tonne of carbon dioxide (CO2) equivalent. At the end of each year, installations must have enough allowances to account for their GHG emissions. They have the flexibility to buy additional allowances on top of their allocation, or to sell surplus allowances generated from reducing their emissions below their allocation at auction. An allowance allows a participant to emit 1 tonne of carbon dioxide equivalent.

The UK ETS was implemented in the UK by The Greenhouse Gas Emissions Trading Scheme Order 2020 (‘2020 Order’). It replaces the European Union Emissions Trading System (EU ETS) for UK participants, which also follows the principles of emissions trading. For more general information on the UK ETS and how it works for participants see the entry for the 2020 Order.

The UK ETS authority for these Regulations are the national authorities, which are:

The Regulations are made under the power in section 96 of the Finance Act 2020 to make Regulations on the allocation of emissions allowances in exchange for payment. They are equivalent to the provisions made around allowances for EU ETS by Regulation (EU) 1031/2010 on the timing, administration and other aspects of auctioning of greenhouse gas allowances.
Duties
Auctions
As with the EU ETS, under the UK ETS auctioning continues to be the main means of introducing allowances into the market. Participants are also able to trade UK ETS emissions allowances on a secondary market. It is set out in Part 2 of the Regulations how bids are to be submitted and withdrawn, and how the auction clearing price is to be determined.

The minimum volume bid is one lot, and each lot auctioned must consist of 500 allowances. Each bid must state:

Each bid may only be submitted, modified or withdrawn during the bidding window set by the auction platform. Any unsold allowances can be added to the next four auctions up to a limit of 125% of their original volume.

The Auction Reserve Price (ARP) is set by these Regulations and this is the minimum price for which allowances can be sold at auctions. Bids below this price will not be accepted. The UK ETS has an ARP of £22. It is not intended that any changes will be made to the ARP before it is likely withdrawn as the scheme matures.
Auction Calendar
The auctioneer sets the auction calendar, including the bidding windows, individual volumes, auction dates, as well as the auctioned product, payment and delivery dates of the allowances to be auctioned in individual auctions each calendar year. The auction platform provider, ICE Futures, was appointed to host emissions auctions on behalf of the UK Government’s Department for Business, Energy and Industrial Strategy (BEIS), which has been appointed as the UK Auctioneer by the Treasury. ICE published the 2021 calendar for UK ETS auctions on 26th February 2021. The first UK ETS auction is 19th May 2021.

The appointed auction platform must publish the auction calendar for a year by 15th July of the preceding year or as soon as practicable after that date. The auction platform must also report transactions to the Financial Conduct Authority in order to provide appropriate regulatory oversight.

This legislation provides for fees and costs to be charged by the auction platform and auctions are to be monitored for issues such as market abuse, money laundering, terrorist financing or other criminal activity.

Auction participants will need to register with the appointed auction platform and must also hold a registry account in the UK Emissions Trading Registry. This registry system is used to ensure the accurate accounting of all allowances issued under the UK ETS, and it is used by operators to surrender allowances each year as required by the 2020 Order.
Cost Containment Mechanism
The Cost Containment Mechanism will be triggered if the average price for one allowance on secondary futures markets is more than:

If any of the above occur then the Treasury can authorise changing the distribution of allowances or increasing the volume of allowances to be auctioned at auctions within a calendar year.
Access to Auctions
Part 4 of the Regulations legislate access to auctions by participants and details the eligibility criteria and process for those applying to bid in auctions and participate in the auction platform’s secondary market. The appointed auction platform can refuse, revoke or suspend admission to bid in auctions.

There is a right of appeal set by these Regulations against decisions made by the auction platform, such as admissions to bid.

The 2021 Regulations are updated to correct some minor technical errors and provide further clarity on some parts of the legislation. Eligibility criteria for those participating in auctions originally set out in regulation 16 of the 2021 Regulations is updated. This means to be eligible to bid in UK ETS auctions, entities will need to be one of the following:

a UK ETS operator or a UK ETS aircraft operator;
a member of a UK ETS operator or UK ETS aircraft operator’s group (i.e. parent companies, subsidiaries or affiliates) which is not required to be located in the UK;
a business grouping of UK ETS operators, UK ETS aircraft operators or their group which is not required to be located in the UK;
public / state bodies of the UK that control UK ETS operators, UK ETS aircraft operator or members of their group;
a UK investment firm or credit institution with ‘Part 4A Financial Services and Markets Act 2000′ permissions;
a third country investment firm or credit institution with ‘Part 4A Financial Services and Markets Act 2000′ permissions; or
a person whose head office or registered office is situated in the UK, and where the activity of bidding on their own account or on behalf of clients is ancillary to their main business.

Clarity is given on how the auction clearing price for UK ETS auctions will be determined and clarifies that it cannot be significantly below the prevailing secondary market price. This is to ensure there is not a scenario where there is a difference between the auction clearing price when the auction fully clears compared to when it partially clears.

The cost containment mechanism (CCM) enables the Treasury to amend the distribution or volume of allowances to be auctioned in any one year if the carbon price exceeds specified limits. The thresholds for the CCM to be implemented are clarified, as well as how the carbon price is calculated to determine if the CCM is triggered.

The Legislation Update Service is the best way to stay up to date automatically with legislation in England, Wales, Scotland, Northern Ireland and the Republic of Ireland.

Amends: The Greenhouse Gas Emissions Trading Scheme Regulations 2012
Mini Summary
The Greenhouse Gas Emissions Trading Scheme Regulations 2012 implement the European Union Emissions Trading System (EU ETS) into UK law.
Amendment
This comes into force immediately before IP completion day, the end of the implementation period of the UK leaving the EU.

As part of its exit from the EU, the UK is ceasing participation in the EU Emissions Trading Scheme (EU ETS) at the end of the implementation period (currently 31st December 2020). Significant changes are made so that from 1st January 2021 these Regulations will apply in Northern Ireland (NI) only, for electricity generation for the wholesale electricity market in Ireland and NI. NI electricity generators will continue to be subject to the same monitoring and compliance obligations as they currently are under EU ETS.

Heat emissions will now be out of scope of EU ETS in NI; there is reported to only be one combined heat and power plant in NI that will be affected by this.

UK operators of a greenhouse gas emissions permit will still need to meet their obligations for any emissions during the transition period, i.e. up to 31st December 2020.

A previous amendment, The Greenhouse Gas Emissions Trading Scheme (Amendment) (EU Exit) Regulations is revoked, as is the majority of The Greenhouse Gas Emissions Trading Scheme (Amendment) (EU Exit) (No. 2) Regulations, which were made prior to the Northern Ireland Protocol being in effect and were used to provide certainty for EU ETS participants in the event of a no deal exit from the EU.

Following exit from the EU, the UK will likely impose a price on carbon emissions by implementing a UK ETS that is similar to EU ETS, or by implementing a UK carbon emissions tax. This will be established in separate legislation.

The Legislation Update Service is the best way to stay up to date automatically with legislation in England, Wales, Scotland, Northern Ireland and the Republic of Ireland.

Amends: Regulation (EU) No 517/2014 on fluorinated greenhouse gases and repealing Regulation (EC) No 842/2006
Mini Summary
Regulation (EU) No 517/2014 on fluorinated greenhouse gases and repealing Regulation (EC) No 842/2006 sets out the requirements around fluorinated greenhouse gases, including rules around production, import, use, recovery and disposal.
Amendment
New reference values are introduced for producers and importers which have placed hydrofluorocarbons on the market in the Union from 1st January 2015.

The previous reference values expire on 31st December 2020. The new reference values will run from the period 1st January 2021 until 31st December 2023.

The reference values for each importer and producer have not been published publicly due to being commercially sensitive information.

The Legislation Update Service is the best way to stay up to date automatically with legislation in England, Wales, Scotland, Northern Ireland and the Republic of Ireland.

The commencement date of various regulations of the previous amendment are brought forward to 1st February 2020. This is to ensure the necessary provisions are brought into force before 1st January 2021, when the remainder of that amendment comes into force, to ensure the legislation can continue to function during any implementation period following the UK’s exit from the European Union.

Amendment
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.

Reporting
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.
Other amendments
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:

In accordance with the Free Allocation Regulations the competent authorities for EU ETS are confirmed as:

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.
Penalties
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.
Transitional provisions
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:

Schedule 5
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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