The Greenhouse Gas Emissions Trading Scheme Regulations 2003 (SI 2003/3311) as amended by SI 2005/925 and SI 2006/737
These regulations implement EU Directive 2003/87/EC. The EU Emissions Trading Scheme (EU ETS) has been introduced across Europe to tackle emissions of carbon dioxide and other greenhouse gases and combat climate change. The scheme began on 1 January 2005. The first phase ran from 2005-2007 and the second phase is running from 2008-2012 to coincide with the first Kyoto Commitment Period. Further 5-year periods are expected subsequently.
The scheme works on a "Cap and Trade" basis. EU Member State governments are required to set an emission cap for all installations covered by the scheme. Each installation will then be allocated allowances for the particular commitment period in question. The number of allowances allocated to each installation for any given period, (the number of tradable allowances each installation will receive), are set down in a document called the National Allocation Plan.
The EU Commission approved the UK’s national allocation for carbon dioxide releases for the first phase of the scheme from 2005 to 2007 (implemented through the Greenhouse Gas Emissions Trading Scheme (Approved National Allocation Plan) Regulations 2005 (SI 2005/1383)). The 1100 energy intensive industrial activities in England and Wales that have signed up to the scheme are able to emit a total of 736 million tonnes a year. In Phase II the Commission approved the UK’s NAP based on an allocation of 1,230 million tonnes of CO2 (about 246 million tonnes per year).
Overall, the emissions cap will take the UK beyond its Kyoto commitment, and is consistent with its domestic goal of moving towards a 20% reduction in CO2 emissions on 1990 levels by 2010.
Gypsum and rock wool sectors were brought into Phase 2 of the scheme as well as other glass making activities and offshore flaring. Legislative proposals to bring aviation into Phase III of the scheme are also expected. The inclusion of other greenhouse gases apart from CO2, such as methane, HFC's and nitrous oxide was rejected by DEFRA, at least for the second phase. The existing allocation system is likely to remain, with DEFRA allocating sector caps which are then divided up between installations.
National Allocation Plan (NAP) – EUETS
Under the Emissions Trading Scheme EU Member State governments are required to set national emissions limits for all installations covered by the ETS in that country. Each country decides how its national allocation of carbon dioxide can be shared amongst company installations through a National Allocation Plan (NAP). Each installation will then be allocated allowances for the particular phase. Anyone who is not covered by the ETS will be able to open an account on the registry and buy and sell allowances.
All installations covered by the ETS are required to hold a Greenhouse Gas Emissions permit (GHG permit) from the appropriate regulator. If an installation falling into the EU ETS does not hold a GHG permit the operator may be subject to enforcement action by the regulators.
The conditions of permits must ensure that the emissions of the installation are properly monitored and reported and that the operator surrenders within 4 months of the end of each scheme year allowances equal to the annual reportable emissions from the installation during that year. Charges are payable to the Environment Agency and SEPA for the subsistence of a permit.
Greenhouse Gas Emissions Trading Scheme (Approved National Allocation Plan) Regulations 2005 (SI 2005 No.1387)
These regulations legally designate the Approved National Allocation Plan 2005–2007 for the purposes of the Greenhouse Gas Emissions Trading Scheme Regulations 2005.
The scheme began 1 January 2005 and will run in two phases. Phase I runs from 2005–2007 and Phase II will run from 2008–2012 to coincide with the first Kyoto Commitment Period. Further five-year periods are expected after that.
Commission Decision establishing guidelines for the monitoring and reporting of greenhouse gas emissions EC 2004/156
Under the EU Emission Trading Scheme, at the end of the year the operator must submit a report to the competent authority detailing the greenhouse gas emissions produced by the installation during that year. The 11 Annexes to this Decision contain guidelines for monitoring and reporting greenhouse gas emissions to ensure regular and accurate monitoring and reporting of greenhouse gas emissions in the Community.
These guidelines specify the required accuracy of relevant emission parameters, such as the entry of quantities of combustibles and operating materials, the determination of calorific values and emission factors, oxidation factors, etc. The higher the installation’s emissions, the higher the required accuracy for the monitoring. Additional guidelines for specific activities are contained in Annexes II to XI.
SEPA, Environment Agency and the Department of the Environment have released a competent authority guide to the EU guidelines available.
Key facts about the operational aspects of the scheme:
- Member states must ensure that each installation covered by the scheme holds a greenhouse gas emissions trading permit (in effect, a licence to operate and to emit carbon dioxide). Each permitted installation will receive an allocation of allowances. The number of allowances allocated to each installation will be based on the Member State's National Allocation Plan.
- Member states must allocate allowances to installations by 28 February each year.
- Member States must ensure that by 30 April each year at the latest, the operator of each installation surrenders a number of allowances equal to the total emissions from that installation during the preceding calendar year. These allowances are then retired.
- Installations are required to have their annual emissions verified. A verification opinion verifying the amount of emissions for the previous calendar year must be submitted to the relevant Regulator by the end of March each year. Allowances equal to these verified emissions will then be retired.
The price of allowances is dictated by the market for trading EU ETS allowances. This is affected by many factors, including the allocations made to all installations, their abatement opportunities and costs, the abatement opportunities and costs of others and access to the Kyoto mechanisms.
Article 16 of the Directive states that operators of installations that do not surrender sufficient allowances to cover their annual emissions will be liable to a penalty. In the first phase of the scheme, the penalty was €40 for each tonne of carbon dioxide equivalent emitted by that installation for which the operator has not surrendered allowances. The penalty rose to €100 per tonne for the second phase. Payment of any such penalty does not release that operator from the obligation to surrender the required amount of allowances the following calendar year. Member States will also ensure that that the names of any operators not surrendering sufficient allowances are published.
There is compulsory participation in the scheme for sites with direct CO2 emissions from activities listed in Annex 1 of the Directive, these are outlined in Appendix 6. Companies obligated must a apply for a permit to trade CO2 and conform with subsequent monitoring and reporting requirements to show that they are in compliance with their permit.
DEFRA has produced guidance on the verification of annual CO2 emissions under the scheme. Verification of emissions data is crucial in ensuring the environmental integrity of the emissions trading scheme and the efficient functioning of the carbon market.
DEFRA has revised guidance on the inclusion and verification of baseline data in the light of guidance from the Commission on national allocation plans for phase II of the EUETS for 2008-2012. Phase II expands the scheme to include more sources of CO2 - so-called expansion activities - in sectors including steel, gypsum and petrochemicals.
DEFRA stuck to its existing (narrower) definition of combustion plant in revised guidance on inclusion in the EU emissions trading scheme (EUETS), despite the broader definition required by the European Commission. This means that many downstream manufacturing companies operating small combustion processes will not be covered by Phase 2 of the scheme.
As well as introducing several minor amendments to the legislation, the 2005 amendment provides for new installations ceasing to carry out any activity listed I Schedule 1 to pay charges in relation to permits.
Guidance on monitoring and reporting under EU ETS and applying for a permit to trade CO2 can be found on the DEFRA website.
The Renewables Obligation Order 2002
The Renewables Obligation requires licensed electricity suppliers to source a specific and annually increasing percentage of the electricity they supply from renewable sources. The target was 6.7% for 2006/07 rising to 15.4% by 2015/16.
The Renewables Obligation Order 2006
This Order makes similar provisions as the 2002 Order and adds further provisions regarding the allocation of ROCs. The Order also introduces a surcharge on late payments received by the Authority from the electricity suppliers.