A UK ETS Authority Civil Penalties consultation has recently been published, which is seeking views on amendments to existing civil penalties within the scheme. Here is a summary of the proposals that are being made.
1) UK ETS Authority Civil Penalties – Amendment to Article 57 civil penalty.
At present there are three penalties relating to the breach of operating without a permit. They are:
- Article 50 – Any qualifying installation carrying out regulated activity without a permit.
- Article 57 – Any hospital or small emitter failing to notify when ceasing to meet the inclusion criteria.
- Article 60 – Any ultra-small emitter failing to notify when reportable emissions exceed maximum amount.
The punitive element of Article 57 currently differs from Articles 50 and 60. The UK ETS Authority proposes to amend Article 57 to align with Articles 50 and 60. They also propose to reduce the penalty where there is no “penalty year” from £5,000 to £2,500 to ensure the penalty is proportionate to the breach. The proposed amendments to Article 57 are as follows (see changes in bold):
Were the operator fails to give notice on or before 31st October in the default year, if there is no penalty year the operator is liable to a civil penalty of £2,500. If there is a penalty year, the operator is liable (after the end of the penalty year) to a civil penalty of the avoided compliance costs for each penalty year ((RE – FA) x CP) – PP. The regulator may increase this amount (before any reduction under Article 48) by 10% or £2,500, whichever is higher.
2) UK ETS Authority Civil Penalties – Amendment to the civil penalty associated with Article 56.
The Article 56 penalty applies to any hospital or small-emitter that under-reports their emissions.
The UK ETS Authority considers the Article 56 penalty to be disproportionately punitive compared to the Article 52 penalty – the failure to surrender allowances by the relevant deadline.
The current Article 56 penalty is calculated as follows:
£5000 + (Unreported emissions in the scheme year in tonnes of carbon dioxide equivalent x Carbon Price for the scheme year, as published by the UK ETS Authority under Article 46)
The UK ETS Authority proposes to:
- remove the link to the carbon price for the scheme year.
- set the value of the Article 56 penalty for unreported emissions at £10 per tonne of carbon dioxide equivalent x the inflation factor.
The Authority does not intend to remove the additional sum of £5,000 the regulators may apply as part of the Article 56 penalty.
3) UK ETS Authority Civil Penalties – Amendments to the Article 52 inflation factor calculation
The Article 52 civil penalty (failure to surrender allowances by the relevant deadline) currently refers to an inflation factor which is currently calculated using the consumer price index (CPI) as follows:
The inflation factor is (CPI2-CPI1) ÷ CPI1 or 1, whichever is greater, where –
- CPI2 is the consumer prices index for the most recent March for which the consumer prices index is published when the penalty notice is given. Currently, CPI2 for the 12-month period following March 2023 is 128.9.
- CPI1 is the consumer prices index for March 2021, which has a value of 109.4. This base figure is used as the first CPI published after the scheme came into force.
The UK ETS Authority is proposing two changes to the above inflation factor calculation.
- Change the inflation factor calculation to “CPI2 ÷ CPI1 or 1, whichever is greater”.
- Amend the definition of CPI2 to the consumer prices index for the most recent March for which the consumer price index is published when the breach occurred, not when the penalty notice is given.
4) UK ETS Authority Civil Penalties – Amendment to the Article 53 civil penalty in relation to permit transfers.
In the Developing the UK ETS Consultation published in 2022, the Authority proposed the introduction of a deficit notice to be issued where an operator fails to surrender allowances to cover its reportable emissions by the relevant deadline. Failure to comply with subsequent deficit notice would result in a significant penalty.
At present, the Article 53 penalty (for failure to transfer or surrender allowances where under-reporting of allowances is discovered after a permit transfer) does not currently consider the deficit notice. The UK ETS Authority proposes to include the deficit notice penalty in Article 53 once the penalty is introduced.
If you have any feedback regarding what is being proposed in the UK ETS Civil Penalties consultation, please send all comments to emissions.trading@energysecurity.gov.uk by the 8th March 2024.
If you have any questions on the information provided within this update, please contact us.
