In 2023 the UK ETS Authority confirmed their intention to include engineered Greenhouse Gas Removals (GGRs) in the UK ETS in the belief that it would provide an appropriate long-term market for both nature based and engineered GGRs. For details of the UK ETS Authorities response in 2023, see click here.
The latest consultation, released on 23rd May 2024, poses questions around how and when GGRs will be integrated into the current ETS system.
The Authority’s proposals about including engineered Greenhouse Gas Removals (GGR) in the UK ETS were split between the following areas:
Policy – What should be the main considerations with introducing GGRs to the existing ETS landscape?
The Authority has outlined their key principles which include; maintaining the incentive to decarbonise, maintaining market integrity, deliverability and environmental integrity.
The Cap – What happens to the UK ETS cap when GGRs are introduced?
Aiming to continue the decarbonisation incentive of the scheme, the Authority has proposed to maintain the current gross cap at the same level. In this case, each time a GGR allowance is awarded an equivalent UKA is removed from the amount available at auction, during that reporting year.
One alternative scenario is to allow the gross cap to increase by keeping the current UKA cap as is and allowing additional GGR allowance to be awarded on top. The Authority has stated they have no desire to do this, as the incentive to abate emissions would be reduced.
A third option is to set a new cap based on the expected number of GGRs that will be introduced into the scheme, in the hope of effectively maintaining the overall cap. However, this is unlikely to work in practice due to the uncertainty around the number of incoming GGRs and has the potential to cause the same issue as the first alternative, if GGRs become oversubscribed.
Allowance Design – How should allowances be awarded and enter the market?
The Authority is minded to award GGR allowances only after the capture and verification process has been completed. As there may be several stakeholders in the chain, the Authority have called for evidence on who best to award the allowance to and if the allowance should be distinguishable from a standard UKA.
Once awarded, the allowance could be given directly to the operator of the GGR or the Authority could auction these on behalf of operators. In the latter case this could work as part of the current ETS auctions with regular UKAs, in a separate auction specific for GGR allowances or split further for the type of GGR that the allowance has come from.
The rationale for differentiating within the market would demonstrate if GGRs, specifically those from high quality technologies, would command a premium over regular UKAs as seen in the voluntary carbon market.
Permanence – What length of storage should be considered and how to deal with any risk of re-release?
For illegibility, GGRs will be required to prove a minimum carbon storage period and hold some liability in case of a reversal in the capture. The Authority has called for evidence on an appropriate storage period and on which liability measures would be suitable.
This section further poses some woodland specific questions, as the Authority considers whether units under the Woodland Carbon Code should be included due to the wider legislative issues with land usage and tree felling.
Pathway to Integration – To what extent should GGRs become part of UK ETS and when should this transition begin?
It is proposed that GGRs will become part of the current ETS marketplace in some regard and there won’t be restrictions on who can purchase these allowances. However, the Authority plans to keep some control over the supply of GGRs into the market initially and has proposed several different means of doing so.
Although a final decision has not been reached on the timing of GGR introduction, the earliest feasible date would be 2028 as this allows time for further consultation of the above issues and development of standards required to enter the scheme. The Authority has noted that there may be some logic in aligning the transition with other changes to the scheme, for example the beginning of Phase II in 2031.
If you wish to respond to the consultation, you can do so before the deadline on the 15th of August, via the the online form or by email ukets.consultationresponses@energysecurity.gov.uk
To speak with someone in the Swan Energy team please click here.
Also released on the same date, was a further targeted consultation around the expansion of UK ETS into the energy from waste sector. For a summary of the key points, click here.
