The information in this note is for:

• 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 (ETS)
• 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
• developers affected by the licensing regime for the geological storage of carbon dioxide
• manufacturers of energy-using products that fall under the ecodesign directive and/or energy labelling regulations

Summary of actions

Actions for businesses:

• affected by EU ETS
• with accounts in the Kyoto Protocol National Registry
• involved in the geological storage of carbon dioxide
• affected by Ecodesign and Energy Labelling standards

Businesses affected by EU ETS

Operators and traders with EU Emissions Trading System Union Registry accounts

All UK operators of stationary installations and UK-administered aircraft operators that currently participate in the EU ETS must comply with their EU ETS obligations for the 2020 scheme year. Verified annual emissions reports for the 12 months of 2020 must be submitted by 31 March 2021 and allowances for 2020 emissions must be surrendered by 30 April 2021.

The temporary suspension by the European Commission on the processes relating to the UK registry was lifted on 3 February 2020 and the UK commenced the process of issuing 2019 and 2020 free allocation, as well as resuming auctions. The lifting of the suspension also allowed UK stationary installation operators and aircraft operators to regain the ability to use their entitlement in the Union Registry to exchange international credits for EU ETS allowances.

On 7 July 2020, the European Commission issued a notice to stakeholders which outlined that UK stationary installation operators and aircraft operators would maintain access to their accounts for 2020 obligations, up to and including 30 April 2021. Access to accounts after this date may no longer be possible. Where applicable, operators should confirm with their traders that delivery of allowances will be possible from 1 January 2021 to ensure sufficient allowances are available to enable compliance with surrender obligations for 2020 emissions. For more details, please see Registry access to the Union registry.

As of 1 January 2021 (the day following the end of the transition period), holders of Trading Accounts, Person Holding Accounts, and Former Operator Holding Accounts in the UK sections of the Registry will no longer have access to these accounts. If account holders wish to continue holding allowances, they may wish to open a trading account in the Union Registry administered by an EU Member State and move their assets to this account before the end of the transition period. For more details, please see sections on Registry access to the Union registry and Businesses with accounts in the Kyoto Protocol National Registry below.

The European Commission has advised aircraft operators that are currently administered for the EU ETS by the UK should take note of their new administering Member State indicated in the attribution list of aircraft operators published by the Commission. Please see the Aviation section below.

The European Commission has confirmed that free allocation administered by the UK must be allocated by the National Administrator on or before 31 December 2020, subject to any changes to the allocation being agreed by the European Commission in a decision meeting before the end of the transition period. For more details, please see the Free allocation below.

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.

Businesses with accounts in the Kyoto Protocol National Registry

The UK will continue to have access to its Kyoto Protocol National Registry within the UK section of the Union Registry until 1 January 2021.

Account holders who use their accounts to hold and trade Certified Emission Reductions and Emission Reduction Units will continue to be able to access their accounts within the UK’s Kyoto Protocol National Registry until 1 January 2021. As of 1 January 2021 (the day following the end of the transition period), account holders will no longer have access to these accounts.

The UK government is procuring a new system to enable account holders to hold and trade Certified Emission Reductions and Emission Reduction Units, which we expect to be operational in Spring 2021. Businesses with accounts in the Kyoto Protocol National Registry should consider taking action to manage the risks created by a short gap in service before the new system is implemented. For example, affected business could consider opening an account in another country’s registry to hold and trade Certified Emission Reductions and Emission Reduction Units during this period.

Clean Development Mechanism project developers can continue to approach the UK’s Designated National Authority for new letters of approval.

Enquiries regarding the UK’s Kyoto Protocol National Registry can be directed to etregistryhelp@environment-agency.gov.uk.

Businesses involved in the 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.

In areas where the Oil and Gas Authority is not the lead licensing authority, developers should contact the relevant devolved administration to confirm when regulatory updates would be implemented.

Businesses affected by Ecodesign and Energy Labelling standards

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 1 January 2021

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

Businesses can create their own energy labels using a range of tools including the EU label generator.

An UK energy label generator is available to UK businesses.

There will be no immediate impact on UK or EU consumers with regard to Ecodesign and Energy Labelling standards.

Climate change regulations and mechanisms

• Before 1 January 2021
• From 1 January 2021
• Implications
• More information

Before 1 January 2021

The UK is a global leader in the fight against climate change. We are proud to have been the first country to set legally binding long-term targets to reduce greenhouse gas emissions, and that, in June 2019, the UK became the first major economy in the world to set a ‘net zero’ greenhouse gas emissions target. We have put clean growth at the centre of our modern Industrial Strategy and our Clean Growth Strategy sets out ambitious policies and proposals that aim to accelerate the pace of clean growth, to 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 (EU ETS) 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 ETS, including:

• power stations
• oil refineries
• offshore platforms
• industries that produce iron and steel, cement and lime, paper, glass, ceramics and chemicals.

In addition, approximately 150 UK-administered aircraft operators take part in the EU ETS.

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 ETS operators hold EU ETS 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 ETS. Aircraft operators with total emissions below 25,000t or intra EEA emissions 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
• Joint Implementation

The Clean Development Mechanism and Joint Implementation provide for the development of projects which are credited with certified emission reductions and 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

During the transition period (until 1 January 2021)

EU Emissions Trading System

Under the terms of the Withdrawal Agreement, the UK will remain in the EU ETS during the transition period and operators must comply with obligations relating to the 2020 scheme year.

Provisions which enable UK participation in the full 2020 EU ETS compliance period are set out in Article 96 of the Withdrawal Agreement. These provisions provide that, from 1 January 2021, the UK will have the obligation and retain the ability to enforce the EU ETS 2020 allowance surrender obligation on 30 April 2021. Access to UK-administered operator accounts in the Union Registry will be retained to facilitate this. The UK will remain a full participant during this period, and UK Regulators will enforce compliance obligations in line with the Greenhouse Gas Emissions Trading System Regulations (2012).

Implications

UK operators in the EU ETS were required to comply with their 2019 obligations by 30 April 2020 and should comply with their 2020 compliance obligations going forward. This includes submitting verified emissions reports and surrendering allowances. UK regulators will continue to have powers to enforce compliance with EU ETS obligations. The deadlines for UK operators participating in the EU ETS during the transition period are:

• report verified 2020 emissions – 31 March 2021
• surrender allowances for 2020 emissions – 31 April 2021

Monitoring, reporting and verification of emissions

Industrial installations and aircraft operators covered by the EU ETS should continue to monitor, report and verify their emissions in line with the Monitoring and Reporting Regulation (MRR) and Accreditation and Verification Regulation (AVR).

Free allocation

The temporary suspension by the European Commission was lifted in February 2020.

Following an application to the New Entrant Reserve, or the notification of a Significant Capacity Reduction or Partial Cessation by an operator, the regulator’s preliminary determination of the total annual amount of allowances must be approved in Commission Decision meetings which occur 4 times a year.

The European Commission has confirmed that free allocation administered by the UK must be allocated on or before 31 December 2020, subject to any changes to the allocation being agreed by the European Commission in a Commission decision meeting before the end of the transition period.

Therefore, UK operators should submit relevant data to their regulator for review as soon as practicable and in advance of the last Commission decision meeting falling within the transition period. However, submitting data by this deadline does not guarantee a decision from the Commission in the last Commission decision meeting. This will be dependent on the operator satisfying the requirements of the Free Allocation Decision, submitting sufficient verified data, and responding to any questions from their regulator as quickly as possible. For more details, operators should contact their regulator as soon as possible.

UK Auctions

The 2020 UK auction calendar of EU ETS allowances was published by ICE Futures Europe, the UK’s auction platform, on 21 February 2020. Read the 2020 UK auction calendar.

Registry access in the Union registry

The European Commission has confirmed in their notice to stakeholders on 7 July 2020 that UK stationary installation operators and aircraft operators will continue to have access to their registry Operator Holding Accounts and Aircraft Operator Holding Accounts administered by the UK for 2020 compliance obligations up to and including 30 April 2021. Access to accounts after this date may no longer not be possible. Where applicable, operators may wish to confirm with their traders that delivery of allowances will be possible from 1 January 2021 to ensure sufficient allowances are available to enable compliance with surrender obligations for 2020 emissions.

As of 1 January 2021 (the day following the end of the transition period), holders of Trading Accounts, Person Holding Accounts, Person Accounts in National Registry and Former Operator Holding Accounts in the UK sections of the Registry will no longer have access to these accounts. You may wish to seek independent advice regarding your options.

UK stationary installation operators, aircraft operators and traders should consider taking action to manage the risks that loss of access may create. Should any account holder wish to continue holding allowances after the losing access to accounts, they may wish to open a trading account in the Union Registry administered by an EU Member State and move their assets to this account. 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.

Registry access to the Kyoto Protocol National Registry

Users with accounts in the Kyoto Protocol National Registry within the Consolidated System of European Registries will retain access until the end of the transition period. The UK government is procuring a new system which we expect to be operational in Spring 2021.

Businesses with accounts in the Kyoto Protocol National Registry should plan for loss of access at the end of the transition period and consider taking action to manage the risks this may create.

EU ETS Innovation fund

We note from the Commission’s “Innovation Fund – First call preparation – Frequently Asked Questions” that to be eligible to apply, the project has to be implemented in one of the EU Member States, Norway or Iceland. The European Commission has confirmed to BEIS that a UK business that plans to implement a project in the UK will not be eligible, but a UK business that plans to implement a project in a Member State, Norway or Iceland would be eligible to bid into the Innovation Fund.

Aviation

In light of the recent EU-Swiss linking agreement the scope of emissions that must be reported on for 2020 has increased. Operators should ensure all emissions on flights between the UK, EEA and Switzerland are included in their 2020 emissions report, and that allowances to cover this increased scope are surrendered by 30 April 2021.

From 1 January 2021

Consultation on the Future of UK Carbon Pricing

The UK Government and Devolved Administrations consulted on the future of carbon pricing in the UK after EU Exit in May 2019. A response to this consultation was issued in June 2020.

As stated in ‘The Future Relationship with the EU: The UK’s Approach to Negotiations’ the UK would be open to considering a link between any UK Emissions Trading Scheme (ETS) and the EU ETS (as Switzerland has done with its ETS), if it suited both sides’ interests.

If a Linking agreement is not agreed, the UK Emissions Trading system will operate as a stand alone system or a Carbon Emissions Tax will be implemented as an alternative means of ensuring a carbon price remains in place in all scenarios. A consultation on the Carbon Emissions Tax is open until 29 September 2020.

The UK government and the devolved administrations are firmly committed to carbon pricing as an effective tool for achieving our carbon emissions reductions targets for net zero. Any future system will be at least as ambitious as the existing scheme. Leaving the EU will not affect our statutory commitments under the UK’s Climate Change Act, which is domestic legislation. The UK will also remain a Party to international climate change agreements, including the Paris Agreement. Its commitment to them will remain as strong as ever and will be unaffected by leaving the EU.

The Ireland / Northern Ireland Protocol to the Withdrawal Agreement

Article 9 and Annex 4 of the Ireland / Northern Ireland Protocol help to maintain the continued operation of the Single Electricity Market by providing for Northern Ireland power generators to continue to participate in the EU ETS after the transition Period.

The UK Government and NI Government are currently engaging with the European Commission on technical matters regarding the operation of the EU ETS in Northern Ireland after the transition period. Upon conclusion of this engagement, further information will be released.

Aviation

The European Commission has advised that aircraft operators that are currently administered for EU ETS by the UK should take note of their new administering Member State indicated in the attribution list of aircraft operators published by the Commission.

More information

BEIS and regulatory authorities will continue to work closely with businesses, trade associations and stakeholders 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 related products: ecodesign and energy labelling

• Before 1 January 2021
• From 1 January 2021
• Implications
• More information

Before 1 January 2021

In the UK, the Department for Business, Energy and Industrial Strategy (BEIS) has lead responsibility for improving the sustainability and energy efficiency of energy related 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. For Ecodesign, this is the Office for Product Safety and Standards in the UK. 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 European product database for energy labelling 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 related products placed on the EU market from this date
• by 1 July 2019 for energy related 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.

From 1 January 2021

From 1 January 2021, the UK will uphold common high product standards wherever possible and appropriate, or even exceed them where it is in the UK’s interest to do so.

All EU ecodesign and energy labelling requirements which enter into force and apply before 31 December 2020 will have effect in the UK. Further legislation is being prepared to ensure that all of these requirements continue to function in the UK from 1 January 2021.

Implications

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.

Stakeholders will be made aware in advance of any necessary actions to take should there be any temporary differences between UK and EU regulatory standards.