Explanatory note

The United Kingdom Emissions Trading Scheme (the “UK ETS”) was established by the Greenhouse Gas Emissions Trading Scheme Order 2020 (the “UK ETS Order”). The UK ETS runs for ten “scheme years” beginning in 2021. Operators of certain industrial installations and certain aircraft operators are required to monitor, report on, and surrender “allowances” equivalent to, their greenhouse gas emissions in each scheme year. Some operators and aircraft operators receive an allocation of allowances free of charge, details of which are published in allocation tables. Allowances are held in accounts in the UK ETS registry, and there is a cap on the number of allowances that may be created. For installations that meet the eligibility criteria, there are two opt-out schemes, one for “hospital or small emitters”, the other for “ultra-small emitters”. Such installations are not required to surrender allowances.

This Order amends the UK ETS Order and Commission Delegated Regulation (EU) 2019/331 (the “Free Allocation Regulation”). Article 24 of the UK ETS Order provides that Commission Implementing Regulation (EU) 2018/2066 (the “Monitoring and Reporting Regulation 2018”) has effect for the purposes of the UK ETS, with modifications, and this Order makes further modifications. The main changes made by this Order are as follows.

Provision is made for the regulator to reject an installation’s monitoring plan and for the operator to appeal against the decision (see amendments to articles 70 and 72 and substituted paragraph 8 of Schedule 4, which modifies Article 12 of the Monitoring and Reporting Regulation 2018). The regulator may refuse to issue a permit unless a monitoring plan has been approved under that Regulation or to convert a hospital or small emitter permit into a greenhouse gas emissions permit unless the monitoring plan complies with that Regulation (see substituted paragraph 3 of Schedule 6, substituted paragraph 9 of Schedule 7 and amendments to paragraphs 24 and 26 of Schedule 7).

When an application is made for an installation’s permit to be transferred from one operator to another, the regulator must approve the new operator’s monitoring plan and any monitoring methodology plan required for free allocation purposes, or any variations of the existing plans, before granting the application (see amendments to paragraphs 8 and 9 of Schedule 6). Where some units of an installation are transferred to an operator of an installation on the same site as the transferred units, the regulator may vary the operator’s existing permit to include the transferred units instead of issuing a new permit (see amendments to paragraphs 7, 9 and 10 of Schedule 6).

A number of technical amendments are made to align more closely the monitoring and reporting rules for process emissions from all forms of carbon (see substituted paragraph 36, and amendments to paragraph 38, of Schedule 4, which modify Annexes 2 and 4 of the Monitoring and Reporting Regulation 2018).

Hospital or small emitters may apply to increase their emissions targets if the capacity of an installation is increased (see new paragraphs 19A to 19G of Schedule 7). It is made clear that, where a verifier is used to verify the reportable emissions of a hospital or small emitter, the operator is exempt from the requirement in Article 69(4) of the Monitoring and Reporting Regulation 2018 to submit a report if the verifier either finds outstanding non-conformities or makes recommendations for improvements (see amendments to paragraph 13 of Schedule 7 (which modifies Article 47(3) of the Monitoring and Reporting Regulation 2018 as it applies to such installations)).

Hospital or small emitters and ultra-small emitters that cease to be eligible for the relevant opt-out scheme and join the main scheme may claim a free allocation of allowances if a successful application for free allocation was previously made (see amendments to articles 4A, 34B, 34C and 34G and paragraph 4 of Schedule 6, new article 34HA and new Schedule 8A). The amount of the civil penalty that may be imposed on operators of such installations who fail to comply with the requirements to notify that they are no longer eligible is reduced to take into account of free allocation (see amendments to articles 57 and 60).

A person who is not an “aircraft operator” may apply for an emissions monitoring plan (see amendments to articles 28, 29 and 30). The UK ETS Order contained an error in the methodology for calculating the “aviation free allocation entitlement” of certain applicants. The error is corrected, and provision is made for the entitlement of those applicants to be recalculated (see article 29 of this Order and the amendments to articles 34J and 34N of the UK ETS Order).

It is made clear that, if a biofuel meets the “sustainability criteria” under the Renewable Transport Fuel Obligations Order 2007, the “emission factor” is zero. Provision is made for the biomass fraction of mixed fuels to be determined by using purchase records (see amendment to article 4 and substituted paragraph 27 of Schedule 4 (which further modifies the Monitoring and Reporting Regulation 2018, including by substituting Article 54)).

Reportable emissions of installations and aviation emissions of aircraft operators must be recorded in the registry (see new paragraph 6A of Schedule 5A). An exemption from liability in damages is expressly provided to those exercising registry functions (see new paragraph 8A of Schedule 5A). Errors made when allocating allowances free of charge may be reversed (see new paragraph 22(6) of Schedule 5A). Account holders may apply for an account to be suspended (see amendments to paragraph 25 of Schedule 5A).

It is made clear that the process for correcting errors in allocation tables applies even if the error is a failure to include an installation or an aircraft operator in the table (see amendments to articles 34H and 34R).

A regulatory impact assessment of the effect that the UK ETS will have on the costs of business, the voluntary sector and the public sector is available from the Industrial Energy Directorate, Department for Business, Energy and Industrial Strategy, 1 Victoria Street, London SW1H 0ET and is available alongside the UK ETS Order on .