Negative Sentiment fought with Negative Statutory Instrument.

The British Government are currently consulting with Industry to bring forward the surrender and compliance dates for EU-ETS scheme in 2019.

The consultation meeting paper can be foundĀ here.

The meeting took place at Department for Business, Energy & Industrial Strategy at 1000hrs GMT 17th November 2017.

There were three questions that were on the consultation agenda.

 

1. Do you agree that bringing forward the 2018 compliance deadlines is a proportionate response to the issues identified and preferable to the proposal to make UK allowances invalid for compliance from 1 January 2018?

 

2. Do you agree with the proposed deadlines for 2018 compliance of 28 February 2019 to report emissions and 22 March 2019 to surrender allowances?

 

3. Would there be any impacts or administrative burdens that could result from bringing forward the 2018 compliance deadlines, for instance for contracts to deliver allowances or from the fact that the surrender deadline would fall at the end of the 2018-2019 financial year, rather than the beginning of the 2019-2020 financial year?

So what’s happening here?

This is to address a legislation change proposal by the European Union which would effectively make all UK Carbon Unit Allocations null and void once they leave the European Union in 2019.

The reason for this is simple. The proposed Brexit date falls in between submission and offsetting credits during 2019 for emissions calculated in 2018. The EU is potentially fearful that UK Operators may fall outside of EU-ETS compliance and therefore dump all their allowances onto the market which could produce a very large impact on the market price of carbon allowances and send it spiralling downwards.

The UK had a lot to do with the design and implementation of EU-ETS and in actuality, we believe that the UK government will continue to be a member of the EU-ETS. However, whilst the current Brexit talks are focused on the EU-UK divorce financial settlement, it seems little progress is being made with any other divorce matters and therefore the EU is now proposing legislation in case of a disgruntled separation.

UK intends to comply with EU-ETS?

This is the purpose of the consultation meeting, hence the UK is proposing to amend theĀ UK Greenhouse Gas Emissions Trading Scheme Regulations 2012 with the use of a negative statutory instrument to bring all compliance and offset dates to a date before the Brexit date in 2019.

This means that they are signalling that all UK operators will comply before Brexit and should signal the UK’s intention to possibly taking the Norwegian route of EU-ETS compliance.

EU-ETS Alternatives

As mentioned before, it is believed from within government that the UK will continue to participate in the EU-ETS but what are the alternatives if it’s relationship with the EU goes South?

  • A UK Version of the EU-ETS.

Potentially, the EU-ETS could be replicated into UK law. However, this could complicate life for EU Operators that also operate in the UK and potentially mean they have to comply with two parallel schemes.

On top of this, there would be a lack of clarity between a potential new UK allowance and an EU allowance and the interoperability between the two.

  • A UK Carbon Tax.

The UK may decide to completely shake up the way it decides to achieve it’s goal from the Paris agreement. This could form the start of a carbon tax on every polluter and is always another option to consider.

Conclusion

We believe that the UK will change the law and allow their operators to comply with EU-ETS regulations prior to Brexit date. We also believe that the UK will continue to use the EU-ETS after Brexit as they were originally a significant stakeholder in this process.

Whilst protractors of the scheme cite that it has been very ineffective, in terms of raising the value of carbon allowances. With very little alternative and ICAO’s CORSIA just around the corner, we doubt that they will waste money reinventing the wheel.