Developing the UK ETS: Initial UK ETS Authority response

In March 2022, the UK ETS Authority published a consultation on developing the UK ETS (Emissions Trading Scheme). The Authority has released the first wave of responses for those proposals that require implementation via legislation ahead of the 2023 scheme year.

 

In Summary:

1) Amendment to the Activity Level Changes Regulation due to the 2020 COVID year

What was proposed: If an operator can demonstrate to the Authority that the COVID-19 pandemic caused significant discrepancies between reductions in output and emissions, the 2020 COVID year will be omitted from the calculation of change in activity level in 2022.

Response: The Authority proposes to amend the Activity Level Changes Regulations to accommodate the above. Significant discrepancies will be determined through the implementation of a 15% threshold level – the difference between the percentage reduction in activity and the percentage reduction in correlating emissions for the 2020 scheme year.

The Authority has noted several requests for changes to 2021 ALC as that also used the 2020 year when calculating activity levels, however, this will be addressed in the wider government response to the consultation.

 

2) Primary energy savings

What was proposed: The amendment of UK ETS legislation to state that new entrants to the UK ETS that are classified as electricity generators, who wish to apply for a free allocation of allowances on the basis that they produce measurable heat by means of co-efficiency generation, may not apply for a free allocation of allowances from the new entrant reserve until they are able to provide a full calendar year of activity level data.

Response: The Authority will implement the above changes to UK ETS legislation.

 

3) Flexible share

What was proposed: The amendment of UK ETS legislation to allow the Authority to create the total number of allowances from the flexible share in a scheme year, in addition to the annual cap.

Response: The Authority will implement the above changes to UK ETS legislation.

 

4) Definition of a verifier

What was proposed: To delete the redundant phrase ‘or another legal entity’ from the definition of a verifier.

Response: The same amendment has been made to the EU ETS legislation therefore the Authority will implement the above changes to UK ETS legislation meaning that consistency will be maintained across schemes.

 

5) Treatment of full transfer and merger

What was proposed: To treat allocations differently based on the date of the permit transfer.

  • If the date of the permit transfer is 01/01 to 30/03, the free allocation of allowances will be merged. The merged allocation will be adjusted in line with the ALC process, and the new operator must submit an activity level report (ALR) for the year 2 years before transfer.
  • If the date of the permit transfer is 31/03 the 31/12, the free allocation of allowances will have already occurred and the ALR submitted. Allocation will therefore be adjusted and allocation from the transferring operator will be returned to Authority to prevent over-allocation.

Response: The Authority will implement the above changes to UK ETS legislation.

 

6) Treatment of partial transfer and split of allocation

What was proposed: To treat allocations differently based on the date of the partial transfer

  • If the date of the permit transfer is 01/01 to 30/03 the free allocation of allowances will be split. The two operators must submit an ALR for the year 2 years before the transfer.
  • If the date of the permit transfer is 31/03 to 31/12 the free allocation of allowances will have already occurred and the ALR submitted. Allocation will be adjusted and allocation from the transferring operator will be returned to Authority to prevent over-allocation.

Response: The Authority will implement the above changes to UK ETS legislation.

 

7) Global warming potentials

What was proposed: Amendment of UK ETS legislation to apply updated Global Warming Potential values set out in the IPCC’s Fifth Assessment Report (AR5), as agreed at COP24 and COP26.

Response: As agreed at COP26, the AR5 without feedback values will be applied in UK ETS legislation.

 

8) Updates required to EN ISO 14065

What was proposed: Amendment of UK ETS legislation to reflect the updated version of ISO 14065 (EN ISO 14065:2020). This is to maintain the consistency of UK with international standards.

Response: The Authority will implement the above changes to UK ETS legislation.

 

9) HSE re-entry to the scheme

What was proposed: Should they wish to, Hospitals and Small Emitters can re-enter the main UK ETS scheme from 2024.

Response: The Authority will provide a one-off window between January and March 2023 for HSEs to re-enter the main UK ETS scheme from 2024 onwards. Operators voluntarily re-entering the scheme will be eligible to apply for free allocation providing they made an application that was assessed as valid for free allocation under Phase IV of the EU ETS.

The Authority is considering the opportunity for those operators that have reduced their emissions to below 25,000 or 2,500 tCO2 per annum to join the HSE or USE schemes. A further consultation will be released in due course.

Please note that some areas of the consultation document have not been summarised because they are not of relevance to our clients. These include changes to Aviation, as well as but not limited to extending the scope of UK ETS to Maritime, Agriculture, Aviation, and Upstream Oil and Gas.

If you have any questions and would like to discuss developing the UK ETS with a member of the Swan Energy team please get in touch. 

Rebecca Scarratt

Carbon Consultant

Rebecca Scarratt

Carbon Consultant

Rebecca has joined the Swan Energy team in 2021. She graduated from the University of Hull with a BSc in Geology with Physical Geography in 2020 and went on to do a MSc in Renewable Energy. Her Masters’ thesis focused on how future climate change may impact the Humber region’s wind energy sector and how adaptation strategies could be used to reduce vulnerability.

In her role at Swan Energy, Rebecca supports the consultancy work the team does with clients across the UK.