UK ETS – the end of the EU ETS in the UK


As the Brexit transition period ended on 31st December 2020, the department for Business, Energy & Industrial Strategy, BEIS, along with the devolved governments, announced that the UK ETS would replace the outgoing EU ETS. This came into effect on 1st January 2021.

The European Union Emissions Trading System at a Glance

The Emissions Trading System, ETS, was first introduced in 2005 by the EU to reduce greenhouse gas (GHG) emissions through an economically efficient mechanism. To do this, the EU sets limits on the total GHG emissions across heavy industrial processes and power stations throughout the EU by issuing permits worth one tonne of CO2 to the relevant organisations. The result is that any surplus permits can be traded with other companies, meaning companies with higher emissions are penalised by having to purchase permits from the market to cover their excess emissions, while those with surplus permits benefit. This scheme encourages the limitation of GHG emissions through an economic mechanism.

The New Emissions Trading Scheme

The new UK ETS aims to ensure a seamless transition for the current permit holders. The scheme will initially cover the same GHGs and sectors covered by the EU ETS for activities with a total rated thermal input in excess of 20MW, with the regulators converting permits currently held for the EU ETS into either a greenhouse gas emissions permit, or, a hospital or small emitter permit, to align with the UK ETS framework. While the overall framework of the ETS remains similar, there are some proposed changes for the UK ETS. These include the emissions cap initially being set five percent below the UK’s current share within the EU ETS, allowing the UK to “go even further, faster” on reducing emissions, according to Energy Minister Kwasi Kwarteng [1]. Another potential avenue for the UK ETS would be to link with the EU ETS through an EU-Swiss style arrangement if both parties were to agree.

What Do These Proposed Changes Mean?

Based on the desire for a seamless transition from BEIS, if the UK ETS methodology is adopted very little should change from the EU ETS it is replacing. However further details are still due to be released by BEIS in early 2021.


Final Comments

As the Paris Agreement’s 2050 date for climate neutrality moves ever closer, the new way in which the UK taxes carbon emissions will be a key component of the UK Government’s strategy of how to reach this target. With the outlined system changing little and keeping the familiarity with the current EU ETS for the end user of these permits, this should ensure low levels of disruption in the immediate term. Long term, the detail of the adopted framework will be crucial for the UK’s pursuit of carbon neutrality, requiring the UK ETS to be robust and help provide the impetus required for that carbon neutrality goal.

With the changes to the ETS legislation and the potential complexities that it will bring, the team at Carbon Architecture have the technical expertise and experience to support our clients through this ever-changing landscape. To ensure your organisation achieves compliance in a cost-effective and timely manner, contact us on 0203 6971 253 or send an email to info@carbonarchitecture.co.uk and one of the team will be happy to discuss how we can support you.

References

[1] = https://www.gov.uk/government/news/new-emissions-trading-system-proposal-would-see-uk-go-further-in-tackling-climate-change