The UK Government has proposed a plan to implement a UK Emissions Trading Scheme by January 2021 to replace EU Emissions Trading Scheme (EU ETS) post-Brexit.
Based on the UK Government and Devolved Administrations earlier consultation on the future of carbon pricing in the UK after Brexit, which received over 130 responses, the UK Government has signposted its plans for a UK Emissions Trading Scheme (UK ETS).
UK ETS and its relationship with EU ETS
In the UK Government’s plans, it is anticipated that the UK ETS will cover many of the aspects of the reformed EU Emissions Trading Scheme with a potential to a pathway for the UK ETS to link to the EU ETS, if this meets the interests of both parties.
It is proposed that UK ETS Phase I will run from 2021-2030, which could operate as either a linked scheme with the EU ETS or standalone system
It would be recalled that approximately 1,000 UK companies in Energy Intensive Industries (EIIs), such as the power generation sector and aviation, are obligated under the current EU ETS to either, reduce their carbon emissions to meet set limits, or buy carbon credits via the carbon markets.
Carbon Leadership
The Department for Business, Energy and Industrial Strategy (BEIS) states in their published document that “the UK ETS will show greater climate ambition from the start. As such, the cap will initially be set 5% below the UK’s notional share of the EU ETS cap for Phase IV of the EU ETS”.
Auction mechanism
Auctioning will continue to be the primary means of introducing allowances into the market.
In order to safeguard competitiveness in the UK ETS and reduce the risk of carbon leakage, a proportion of allowances will be allocated for free with some free allowances available through the New Entrants Reserve to new stationary entrants to the UK ETS as well as existing operators who increase their activity. The initial UK ETS free allocation approach will be similar to that of Phase IV in order to ensure a smooth transition for participants for the 2021 launch.
Within the UK ETS, a transitional Auction Reserve Price (ARP) of £15 (nominal) will be set to ensure a minimum level of ambition and price continuity during its initial years.
Opt-Outs
It is proposed to have a Small Emitter and Hospital Opt-Out for installations with emissions lower than 25,000t CO2e per annum and a net-rated thermal capacity below 35MW. Additionally, the proposal is for an Ultra-Small Emitter Exemption for installations with emissions lower than 2,500t CO2e per annum.
International Credits
International credits will not be permitted in the initial UK ETS but this is subject to an ongoing review on how best to implement the UN global offsetting scheme, CORSIA, alongside a UK ETS.
A copy of the UK Government’s document: The Future of UK Carbon Pricing – UK Government and Devolved Administrations’ response can be freely downloaded here
| ACTION POINTS 1. Obtain a copy of the UK Government document on the proposed UK ETS 2. Review the proposals in relation to EU and UK ETS compliance 3. Monitor the development of the UK ETS and any new compliance requirements applicable to your organisation |
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