Insights

KEY POINTS FOR OPERATORS FROM THE NEW UK EMISSIONS TRADING SCHEME (UK ETS)

As of 1st January 2021, we are now operating under the new UK Emissions Trading Scheme (UK ETS). The UK ETS was established through The Greenhouse Gas Emissions Trading Scheme Order 2020 (SI 2020/1265) which was then amended (SI 2020/1557) to include the requirements for free allocation of allowances and monitoring methodology plans.

The Amendment Order makes frequent reference to SI 2020/1265 and both documents reference existing EU Regulation. As such, the legislation is not currently easily digestible but having been through these and the available guidance, ITPEnergised have reviewed and summarised the high-level key points of interest and importance to operators.

  • SCOPE OF UK ETS
    • The UK ETS covers 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).
  • PERMIT VARIATIONS
    • Permits have already been varied to account for the Order but a subsequent variation is expected to be prepared and issued by the regulator in January 2021 to include conditions relating to the free allocation of allowances and, where relevant, to attach your monitoring methodology plan to your permit.
  • MONITORING, REPORTING AND VERIFICATION
    • The Order establishes the link to the EU Monitoring and Reporting Regulation (MRR) meaning that there should not be a fundamental change from the requirements of the EU ETS.
    • Verified emissions must still be reported by 31st March each year. Note that operators must still comply with their obligations under the EU ETS relating to the 2020 scheme year.
    • ETSWAP is still to be used but a new system is under development.
    • Some simplifications, such as the ability to aggregate multiple source streams adding up to 10t CO2e or less have been included.
    • There will be simplified provisions for small emitting installations and hospitals with emissions lower than 25,000t CO2e per annum and a net-rated thermal capacity below 35MW. These installations will be subject to emissions targets instead of trading allowances.
  • FREE ALLOCATION OF ALLOWANCES
    • UK ETS Allowances
      • The Free Allocation Regulation (FAR) continues to apply under the UK ETS Order.
      • The requirement to monitor activity levels in accordance with the FAR and the Monitoring and Measurement Plan (MMP) associated with each installation remains.
      • In relation to activity levels in 2019 and 2020, you must submit the report the verified activity level data must be submitted on or before 30th June 2021. Please note that this deadline is different to the date currently specified in the Activity Level Changes Regulation. For activity levels in 2021 and for every scheme year thereafter, the deadline for the report is 31st March in the following year. If data contained in these reports show an increase or decrease in activity of 15% or more, the operator’s free allocation will be recalculated in line with this change
      • During the early years of the UK ETS, we will have a total emissions cap equal to our notional share of the Phase IV EU ETS cap minus 5%. This reduction in the overall cap is to be taken from the auction share, with free allowances being broadly the same as they would be if the UK continued participation in Phase IV of the EU ETS.
      • The UK government will set a minimum price on the allowances of £15/tonne, and, as with EU allowances, mechanisms will be put in place to control prices should they increase significantly.
      • Further details on the auction calendar and the spot and futures contracts will be announced in due course. Intercontinental Exchange (ICE) has been appointed to host emissions auctions on behalf of the UK Government’s Department for Business, Energy and Industrial Strategy (BEIS). ICE plans to commence auctions and launch the related futures contracts as soon as feasible and no later than the second quarter of 2021, subject to regulatory approval.
    • EU ETS Free Allowances
      • UK Registry Holding Accounts remain open until 30th April 2021. UK Trading Accounts are now closed and allowances therefore now need to be purchased from non-UK EU Trading Accounts.

Guidance is planned to be released in early 2021 alongside the Small Emitters and Hospital Opt-Out Scheme and the Ultra-Small Emitter Exemption guidance. An initial review of the UK ETS is to be conducted from 2023 to assess whole system performance during the first half of the phase (2021-2025) with any necessary changes to design features implemented by 2026.

If you have any questions on the move to the UK ETS, your obligations under the EU ETS for your 2020 emissions, or any other emissions related queries, please contact scott.chambers@itpenergised.com who will be happy to help.