Guidance
Meeting climate change requirements if there’s no Brexit deal
Updated 28 February 2019
Delivering the deal negotiated with the EU remains the government’s top priority. This has not changed.
However, the government must prepare for every eventuality, including a no deal scenario. For 2 years, the government has been implementing a significant programme of work to ensure that the UK is prepared to leave the EU on 29 March 2019 (may also apply to new exit date on 31 December 2020).
It has always been the case that as we get nearer to that date, preparations for a no deal scenario would have to be accelerated. We must ensure plans are in place should they need to be relied upon.
In the summer, the government published a series of 106 technical notices setting out information to allow businesses and citizens to understand what they would need to do in a no deal scenario so they can make informed plans and preparations.
This technical notice offers guidance for continued planning in the event of no deal.
Also included is an overarching framing notice explaining the government’s approach to preparing the UK for this outcome in order to minimise disruption and ensure a smooth and orderly exit.
We are working with the devolved administrations on technical notices and we will continue to do so as plans develop.
Purpose
This notice aims to support the contingency planning for a ‘no deal’ scenario of UK operators of installations (for example, power stations and oil refineries) and UK-administered aircraft operators that currently participate in the EU Emissions Trading System, and other organisations and individuals with accounts within the UK section of the Consolidated System of European Registries which also includes the UK’s Kyoto Protocol National Registry.
It clarifies the implications of the UK leaving the EU on the licensing regime for the geological storage of carbon dioxide; whilst this is not a direct component of the EU Emissions Trading System, the licensing regime for the geological storage of carbon dioxide partly relies on EU Emissions Trading System legislation.
It also outlines the impact on energy-using products that fall under the ecodesign directive and/or energy labelling regulations.
Climate change regulations and mechanisms
- Before 29 March 2019 (may also apply to new exit date on 31 December 2020)
- After March 2019 if there’s no deal
- Implications
- Actions for businesses and other stakeholders
- More information
Before 29 March 2019 (may also apply to new exit date on 31 December 2020)
The UK is a global leader in the fight against climate change and we are proud to be the first country to set legally binding targets to reduce greenhouse gas emissions. The UK’s Climate Change Act requires us to reduce emissions by at least 80% against 1990 levels by 2050. We have put clean growth at the centre of our modern Industrial Strategy and our Clean Growth Strategy sets out a comprehensive set of policies and proposals that aim to accelerate the pace of clean growth, i.e. deliver increased economic growth and decreased emissions.
The UK is deeply committed to domestic and international efforts to tackle climate change. The UK is a Party, in its own right as well as through the EU, to international climate change agreements, including the Kyoto Protocol and the Paris Agreement.
EU Emissions Trading System
The EU Emissions Trading System is an international, greenhouse gas emissions trading system which applies to multiple sectors. There are around 1,000 installations in the UK which participate in the EU Emissions Trading System, including:
- power stations
- oil refineries
- offshore platforms
- industries that produce iron and steel, cement and lime, paper, glass, ceramics and chemicals.
In addition, approximately 140 UK-administered aircraft operators take part in the EU Emissions Trading System.
Participating operators are required to develop plans to monitor their emissions in accordance with the European Commission’s Monitoring and Reporting Regulation. They are also required to produce annual emissions reports that are verified independently in accordance with the Accreditation and Verification Regulation.
EU Emissions Trading System operators hold EU Emissions Trading System Union Registry accounts which provide them with access to their emissions allowances. At the end of each compliance year, operators must give up from their account one allowance for each tonne of verified carbon dioxide (or equivalent) emitted. Operators who are considered at risk of carbon leakage receive allowances through free allocation (if eligible) from their Member State of predetermined amounts agreed by the EU Commission. Other operators buy allowances on the carbon market or via a government administered auction.
Some UK-based operators falling within the scope of the EU Emissions Trading System Directive are excluded from the scheme through their inclusion in the UK Small-Emitter and Hospital Opt-Out Scheme. Instead of receiving and needing to give up allowances these operators are given emissions targets, and these excluded installations pay only for emissions which exceed their target. Targets for excluded installations are set based on the allocation they would receive for free had they remained in the EU Emissions Trading System. Aircraft operators with total emissions below 25,000t or intra EEAemissions below 3,000t may use a simplified verification procedure.
The Kyoto Protocol
The Kyoto Protocol established 3 market-based mechanisms, emissions trading, the Clean Development Mechanism, and Joint Implementation. The Clean Development Mechanism and Joint Implementation provide for the development of projects which are credited with emission reduction units for offsetting greenhouse gas emissions. The UK has established regulatory functions, the Designated National Authority for Clean Development Mechanism projects and Designated Focal Point for Joint Implementation projects, responsible for issuing letters of approval for Clean Development Mechanism and Joint Implementation project activities respectively.
The UK’s National Kyoto Protocol Registry is located within the Consolidated System of European Registries and facilitates the trading of Kyoto Protocol emissions units. Holders of accounts within the Registry include:
- actors who trade in Certified Emission Reductions and Emission Reduction Units generated under Clean Development Mechanism, and Joint Implementation
- project developers who secured approval for Clean Development Mechanism projects from the UK’s Designated National Authority
After March 2019 if there’s no deal
There is no change to the UK’s deep commitment to domestic and international efforts to tackle climate change. The UK’s Climate Change Act is domestic legislation and will be unaffected by exiting the EU. The UK will remain a Party to international climate change agreements. Its commitment to them will remain as strong as ever and will be unaffected by EU exit. The UK will therefore continue to take ambitious steps to reduce greenhouse gas emissions, and the UK’s Clean Growth Strategy highlights our policies and proposals for doing so. Clean Growth will remain at the centre of our modern Industrial Strategy.
EU Emissions Trading System
The UK will be excluded from participating in the EU Emissions Trading System in a ‘no deal’ scenario. This means that current participants in the EU Emissions Trading System who are UK operators of installations will no longer take part in the system and flights within the UK will no longer be covered by EU Emissions Trading System obligations. The Commission has confirmed, through its Notice to Stakeholders on the Withdrawal of the United Kingdom and the EU Emissions Trading System dated 19 December 2018 (the ‘Notice to Stakeholders’) that, as of the withdrawal date, stationary installations in the UK are no longer within scope of Union law and the EU Emissions Trading System. Additionally, the derogation from the EU Emission Trading System for flights to and from aerodromes located in countries outside the EEA will apply to flights between the UK and the European Economic Area (EEA).
The UK will no longer be responsible for managing the EU Emissions Trading System requirements for the aircraft operators it currently administers. If those aircraft operators continue to fall within the scope of the EU Emissions Trading System (for example, if they operate intra-EEA flights after exit), these requirements will need to be administered by an EU Member State. The Commission’s Notice to Stakeholders confirmed that the Commission services will update the attribution list of aircraft operators set out in Commission Regulation (EC) No 748/2009 in the context of the annual update, to inform aircraft operators of the administering Member State.
In a ‘no deal’ scenario, the UK government will remove requirements relating to the surrender of emissions allowances under the EU Emissions Trading System for the 2019 compliance year onwards However, to retain as much continuity as possible, the UK government intends to maintain Monitoring, Reporting and Verification arrangements.
The Commission has confirmed in its Notice to Stakeholders that it has instructed the central administrator to suspend relevant processes for the United Kingdom until the day after ratification instruments concerning the withdrawal agreement are deposited. As stated on the Commission website: ‘from 1 January 2019 onwards the UK will not be able to auction allowances, allocate allowances for free to operators or exchange international credits for as long as this suspension remains in place’. In line with the suspension notification of the Commission, the UK government will not issue any 2019 allowances unless and until the suspension is lifted.
The Commission has also confirmed that in a no-deal scenario as of the withdrawal date, no more auctions by the United Kingdom and no more allocation of free allowances to the accounts administered by the United Kingdom can take place, and no exchanges of international credits can be performed by operators administered by the United Kingdom.
Registry access
The European Commission has stated in its Notice to Stakeholders that, as of the withdrawal date, accounts in the EU Emissions Trading System Union Registry administered by the United Kingdom and accounts in the Kyoto Protocol registry of the United Kingdom will be inaccessible.
Implications
EU Emissions Trading System
The government has taken steps to provide certainty to UK operators in meeting their compliance obligations for the 2018 compliance year. To ensure these will not be affected in a ‘no deal’ scenario, the government brought forward the 2018 compliance year deadline in domestic legislation for operators to report their 2018 emissions and surrender allowances for those emissions from 30 March 2019 and 30 April 2019, to 11 March 2019 and 15 March 2019 respectively (i.e. before the day the UK exits the EU).
Allowances issued by the UK in 2018 have not been identified with a country code by the Commission, and, as with all allowances issued previously by the UK government, they will be valid for EU ETS compliance and indistinguishable from allowances issued by other EU Member States. In line with the suspension notification of the Commission, the UK government will not issue any 2019 allowances unless and until the suspension is lifted. Operators will want to consider this when planning to meet their 2018 compliance obligations.
The government will retain the existing financial penalty for failure to surrender allowances for the 2018 compliance year.
In a ‘no deal’ scenario, there will be no requirement to surrender EU Emissions Trading System allowances after the 2018 compliance year – the surrender deadline for 2018 emissions is 15 March 2019.
The UK government intends to maintain Monitoring, Reporting and Verification arrangements to ensure continuing transparency over greenhouse gas emissions. The Monitoring, Reporting and Verification framework requires all operators to monitor and report on their annual greenhouse gas emissions and produce a verified annual emissions report. Monitoring, Reporting and Verification falls under the devolved competence of environmental policy.
UK operators of stationary installations will continue to report on their emissions. Aircraft operators who will be registered in the UK after exit day will continue to report their emissions on the same flights as required on exit day. Operators in the Small Emitter and Hospital Opt-Out scheme will also continue to report.
There is no immediate action for aircraft operators who will be registered outside the UK after exit day, even if they are currently administered by the UK (but not registered in the UK), as the UK government will not initially place Monitoring, Reporting and Verification requirements on these operators in a ‘no deal’ scenario.
The current UK regulators will continue to have powers to enforce non-compliance with these ongoing requirements.
Registry access
As noted above, in a ‘no deal’ scenario, the European Commission has stated that accounts in the EU Emission Trading System Union Registry administered by the United Kingdom and accounts in the Kyoto Protocol registry of the United Kingdom will be inaccessible as of the withdrawal date. With regard to the Kyoto Protocol National Registry, the UK government’s preferred solution is to retain access to the Consolidated System of European Registries. However, as this cannot be guaranteed, account holders and users of the UK’s Kyoto Protocol National Registry should consider carefully the information provided in this Technical Notice.
UK businesses providing verification services to operators in EU Member States
The Commission has confirmed in its Notice to Stakeholders that, as of the withdrawal date, accreditations by the UK National Accreditation Body will no longer be valid in the EU. As a result, as of the withdrawal date, verifiers accredited by the UK National Accreditation Body will no longer be able to issue EU ETS verification reports under Directive 2003/78/EC. Providers of verification services under the ETS should consider this announcement when preparing for exit.
Carbon pricing
As set out at Budget 2018, in a ‘no deal’ scenario, the UK government would introduce a Carbon Emissions Tax to help meet the UK’s legally binding carbon reduction commitments under the Climate Change Act.
For 2019 a rate of £16 would be applied to each tonne of carbon dioxide emitted over and above an installation’s emissions allowance, which would be based on the installation’s free allowance allocation under the EU ETS. The rate for years beyond 2019 would be set at future fiscal events.
The tax would apply to all stationary installations currently participating in the EU ETS from 1 April 2019. The UK government has no plans to introduce additional domestic policy to cover emissions from January to March 2019. The aviation sector would not be subject to the Carbon Emissions Tax. Aviation operators would still be obliged to comply with greenhouse gas Monitoring Reporting and Verification requirements.
The government is continuing to develop options for long term carbon pricing, including remaining in the EU ETS; establishing a UK ETS (linked to the EU ETS or standalone) or a carbon tax. We will consult on our future approach to carbon pricing in due course.
Geological storage of carbon dioxide
Geological storage of carbon dioxide is not a direct component of the EU Emissions Trading System, but there is a legislative link between the licensing regime for the geological storage of carbon dioxide and the EU Emissions Trading System. In a ‘no deal’ scenario, the licensing regime for geological storage of carbon dioxide would become inoperable as legal consent to undertake storage could not be granted.
The government is planning to restore functionality in areas where the Oil and Gas Authority licenses storage. Elsewhere (that is, in Scotland and Northern Ireland) restoring functionality would require devolved administrations to modify their respective licensing regulations.
Actions for businesses and other stakeholders
Operators and traders with EU Emissions Trading System
Operators and traders with EU Emissions Trading System allowances in their account in the UK section of the Registry should plan for a loss of registry access as of the withdrawal date, and consider taking action to manage the risks this may create. Operators wishing to retain access to their allowances after the withdrawal date should consider opening an account in another Member State’s Registry for this purpose, and should consider the amount of time this is likely to require. The risk of loss of registry access should similarly be considered in relation to any open futures, options or other derivative contracts and hedging positions for any allowances in the Registry.
Operators should continue to comply with the EU Emissions Trading System Directive whilst the UK remains a participant. Operators should be prepared to leave the System in the event of a ‘no deal’ scenario, but plan to comply with greenhouse gas emissions Monitoring, Reporting and Verification requirements, and the new Carbon Emissions Tax after EU exit.
Energy intensive industry relief schemes participants
Businesses that currently benefit from energy intensive industry relief schemes for the indirect policy costs of carbon pricing should continue to comply with the requirements set out in the government guidance for these schemes.
Subject to state aid clearance, the scheme to compensate energy-intensive industries for the indirect costs of the EU ETS would remain in place to compensate for the indirect emission costs of the new Carbon Emissions Tax.
Kyoto Protocol National Registry
In a ‘no deal’ scenario, the Commission has stated in its Notice to Stakeholders that accounts in the Union Registry administered by the United Kingdom and accounts in the Kyoto Protocol registry of the United Kingdom will be inaccessible from the point of withdrawal.
The UK government’s preferred position is to retain access to the UK’s Kyoto Protocol National Registry and ensure an uninterrupted service for users. As this cannot be guaranteed, the government is exploring contingency measures. In the meantime:
- account holders who use their accounts to trade Certified Emission Reductions and Emission Reduction Units should consider opening an account in another country’s registry for this purpose
- Clean Development Mechanism project developers should consider the information in this notice carefully before approaching the UK’s Designated National Authority for new letters of approval
- Clean Development Mechanism project developers who have previously received a letter of approval from the UK Designated National Authority should consider whether to reapply for a letter of approval from a different Designated National Authority and the timescales for securing this
Individual account holders will need to decide what course of action might be appropriate given their individual circumstances.
Account holders should also be aware that there is a risk that they will lose access to their transaction history if the UK cannot access its Kyoto Protocol National Registry. This may impact an account holder’s ability to fulfil individual audit purposes. To mitigate this risk, account holders could consider downloading their previous UK account history before the UK leaves the EU on 29 March 2019 (may also apply to new exit date on 31 December 2020) and retaining it for record keeping purposes.
Enquiries regarding the UK’s Kyoto Protocol National Registry can be directed to etregistryhelp@environment-agency.gov.uk.
Geological storage of carbon dioxide
Developers of facilities for geological storage of carbon dioxide in areas where the Oil and Gas Authority is the licensing authority may contact the Oil and Gas Authority for further information about its implementation of changes to the licensing regime, once these changes come into force. Installations do not need to be located inside this area, to access geological storage facilities within this area.
Elsewhere (that is, in Scotland and Northern Ireland) developers should contact the relevant devolved administration to confirm when regulatory updates would be implemented.
More information
BEIS and regulatory authorities will continue to work closely with businesses, trade associations and stakeholders on the implications of a ‘no deal’ and communicate information and updates online.
Information on the EU Emissions Trading System and Monitoring, Reporting and Verification is available on the European Commission’s website.
Immediate queries on the EU Emissions Trading System sections can be directed to the team at BEIS: eu.ets@beis.gov.uk.
More information on geological storage of carbon dioxide will be made available on GOV.UK.
More information about climate change generally will also be provided on GOV.UK.
Energy-using products: ecodesign and energy labelling
- Before 29 March 2019 (may also apply to new exit date on 31 December 2020)
- After March 2019 if there’s no deal
- Implications
- Actions for businesses and other stakeholders
- More information
Before 29 March 2019 (may also apply to new exit date on 31 December 2020)
In the UK, the Department for Business, Energy and Industrial Strategy (BEIS) has lead responsibility for improving the sustainability and energy efficiency of energy-using products in households and the commercial sector. This is achieved by EU-wide Ecodesign and Energy Labelling measures which are enforced under domestic law (Ecodesign for Energy-related Products Regulation 2010 and Energy Information Regulations 2011.
Each EU Member State must appoint a Market Surveillance Authority (MSA) for control and enforcement activities. In the UK, for Ecodesign, this is the Office for Product Safety and Standards, and for energy labelling, both the Office for Product Safety and Standards and Trading Standards (in GB) and the Department for the Economy (in NI).
The EU product database is a new online portal that came into force on 1 January 2019. It has an ‘open’ section for consumers to view product-related information and a ‘closed’ compliance section for Market Surveillance Authorities to view technical product-related information.
Suppliers are required to input relevant information into the database:
- from 1 January 2019 for energy-using products placed on the EU market from this date
- by 1 July 2019 for energy-using products placed on the EU market (including the UK market) between 1 August 2017 and 1 January 2019
A re-classification of energy labels is scheduled and new labels with A – G energy rating classes (instead of A+++ – G energy rating classes) will be phased in over time as planned.
After March 2019 if there’s no deal
For ecodesign and energy labelling regulations which will enter into force and apply before the point of exit, regulatory alignment will be maintained by bringing relevant EU regulations into domestic law.
After the point of exit, the UK will keep step with equivalent standards wherever possible and appropriate, or even exceed them where it is in the UK’s interest to do so. To this end, draft Regulations on Ecodesign for Energy-Related Products and Energy Information were laid in both the House of Commons and the House of Lords on 19 December 2018.
Implications
There will be no immediate change to trading practices.
Enforcement activities will continue as normal, carried out by the Office for Product Safety and Standards, Trading Standards and the Department for the Economy (NI) which will maintain their roles as Market Surveillance Authorities.
Actions for businesses and other stakeholders
In terms of the EU product database:
- all consumers will still have access to the ‘open’ section of the database
- however, the UK’s Market Surveillance Authorities will no longer have access to the ‘closed’ compliance section of the database.
There will be changes for UK and EU suppliers regarding the EU product database. UK and EU suppliers placing relevant energy-using products:
- on the EU market will have to enter relevant information into the database.
- on the UK market will not be required, under domestic law, to enter relevant information into the database, including for those products placed on the market between 1 August 2017 and 1 January 2019 after the point of exit.
UK and EU suppliers must ensure that relevant energy-using products:
- placed on the UK market comply with minimum UK ecodesign and energy labelling standards.
- placed on the EU market comply with minimum EU ecodesign and energy labelling standards.
UK and EU retailers must ensure that relevant energy-using products:
- placed on the UK market comply with minimum UK energy labelling standards.
- placed on the EU market comply with minimum EU energy labelling standards.
There will be no immediate impact on UK or EU consumers in regard to ecodesign and energy labelling standards.
More information
For additional information regarding goods, please refer to technical notices:
- Trading under the mutual recognition principle if there’s No Brexit deal; and
- Trading goods regulated under the new approach if there’s No Brexit deal
- Appointing nominated persons to your business if there’s no Brexit deal
More information on the Office for Product Safety and Standards can be found on its website.
The draft legislation on Ecodesign for Energy-Related Products and Energy Information can be found in the related government web pages.
This notice is meant for guidance only. You should consider whether you need separate professional advice before making specific preparations.
It is part of the government’s ongoing programme of planning for all possible outcomes. We expect to negotiate a successful deal with the EU.
The UK government is clear that in this scenario we must respect our unique relationship with Ireland, with whom we share a land border and who are co-signatories of the Belfast Agreement. The UK government has consistently placed upholding the Agreement and its successors at the heart of our approach. It enshrines the consent principle on which Northern Ireland’s constitutional status rests. We recognise the basis it has provided for the deep economic and social cooperation on the island of Ireland. This includes North-South cooperation between Northern Ireland and Ireland, which we’re committed to protecting in line with the letter and spirit of Strand 2 of the Agreement.
The Irish government have indicated they would need to discuss arrangements in the event of no deal with the European Commission and EU Member States. The UK would stand ready in this scenario to engage constructively to meet our commitments and act in the best interests of the people of Northern Ireland, recognising the very significant challenges that the lack of a UK-EU legal agreement would pose in this unique and highly sensitive context.
It remains, though, the responsibility of the UK government, as the sovereign government in Northern Ireland, to continue preparations for the full range of potential outcomes, including ‘no deal’. As we do, and as decisions are made, we’ll take full account of the unique circumstances of Northern Ireland.
Norway, Iceland and Liechtenstein are party to the Agreement on the European Economic Area and participate in other EU arrangements. As such, in many areas, these countries adopt EU rules. Where this is the case, these technical notices may also apply to them, and EEA businesses and citizens should consider whether they need to take any steps to prepare for a ‘no deal’ scenario.