EXPLANATORY MEMORANDUM TO
THE GREENHOUSE GAS EMISSIONS TRADING SCHEME (AMENDMENT) (EU
EXIT) (NO.2) REGULATIONS 2019
2019 No. XXXX
1. Introduction
1.1 This explanatory memorandum has been prepared by the Department for Business,
Energy and Industrial Strategy and is laid before Parliament by Act.
1.2 This explanatory memorandum contains information for the Sifting Committees.
2. Purpose of the instrument
2.1 In the event that the UK withdraws from the EU without a deal (‘No Deal’), the UK
would not have an agreement in place to continue participating in the EU Emissions
Trading System (EU ETS), which would create inoperabilities in existing legislation.
The Greenhouse Gas Emissions Trading Scheme (Amendment) (EU Exit) Regulations
2019 (S.I. 2019/107) revoked certain provisions that will cease to apply on exit day and
amended others to address those inoperabilities. S.I. 2019/107 can be found here:
http://www.legislation.gov.uk/uksi/2019/107/contents/made.
2.2 This instrument makes further amendments for the same purpose, following
amendments to EU law governing the EU ETS (predominantly relating to the
verification of emissions, and accreditation of verifiers). These amendments to EU law
would result in further inoperabilities in the event of a no-deal exit. The need for this
further instrument was explained in the Explanatory Memorandum which accompanied
S.I. 2019/107. No substantive policy changes are made by this instrument this is in line
with the powers of section 8 of the European Union (Withdrawal) Act 2018.
2.3 This instrument maintains, and makes technical fixes to, the elements of the EU ETS
which will continue operate after exit, namely the Monitoring, Reporting and
Verification (‘MRV’) of greenhouse gas emissions. As well as ensuring transparency
over greenhouse gas emissions, MRV will also provide information to allow the
implementation of a ‘Carbon Emissions Tax’ by HM Treasury (announced in the 2018
Budget and legislated for separately in the Finance Act 2019). In the absence of the EU
ETS, the Carbon Emissions Tax will maintain a carbon price for industry in the event
that the UK withdraws from the EU without a deal until a long-term alternative is
established. The Carbon Emissions Tax is therefore without prejudice to any future
decision on the UK’s future approach to carbon pricing in the longer term; the UK is
considering the options, including continuing to participate in the EU ETS, a UK ETS
(linked or standalone) or a carbon tax.
Explanations
What did any relevant EU law do before exit day?
2.4 The relevant EU law established the EU ETS, which allows for the trade and surrender
of emissions allowances. Tertiary legislation (consisting of the Monitoring and
Reporting Regulations and the Accreditation and Verification Regulations) also
requires operators to monitor, report and verify their carbon emissions. MRV is an
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important facet of the EU ETS as it ensures that emissions are accurately reported by
participants. As well as setting out MRV requirements, the relevant law ensures that
one emissions allowance is equivalent to one tonne of carbon dioxide (or equivalent)
for all participants.
Why is it being changed?
2.5 Following the amendments to EU law described in paragraph 2.2, the provisions made
by S.I. 2019/107 still provide functioning monitoring and reporting regulations for UK
operators, as the amendments to EU law were predominantly made to accreditation and
verification requirements. This instrument accounts for those changes and will be in
force before UK operators begin the accreditation and verification processes. No
material impact of the inoperabilities introduced by the amendments to EU law will be
felt by operators on exit day.
What will it now do?
2.6 This instrument will repeal one regulation of S.I. 2019/107 and make additional
technical changes to the retained EU law pertaining to MRV so that it operates
effectively in domestic law. The requirement to undertake MRV for existing
participants will continue outside of the EU ETS in a ‘No Deal’ scenario. The
instrument will also revoke retained EU law relating to the free allocation of allowances
which was also updated by the European Commission together with the MRV
regulations and which can no longer operate in the UK after exit. Further details are
provided in sections 6 and 7 below.
3. Matters of special interest to Parliament
Matters of special interest to the Sifting Committees
3.1 This instrument is being laid for sifting under the negative procedure. This is because
the instrument does not trigger the affirmative procedure as set out in Schedule 7,
paragraph 1(2) of the EU (Withdrawal) Act 2018. This instrument does not alter the
‘No Deal’ MRV policy. It makes necessary technical changes to S.I. 2019/107 and the
Commission Regulations governing MRV requirements, which will be retained, and
revokes those provisions that will no longer apply after exit day. The instrument also
amends the Greenhouse Gas Emissions Trading Scheme Regulations 2012 to update
the definition of the “Verification Regulation”. The substance of the instrument is
concerned with fixing technical issues that arise in a ‘No Deal’ scenario, details of
which have already been published in a Technical Notice (see section 11.3).The Carbon
Emissions Tax (legislated for, separately, in the Finance Act 2019), was announced in
the 2018 Budget and will be used to provide a carbon price signal in a ‘No Deal’
scenario. We do not therefore consider this specific instrument to be controversial, or
politically or legally important, and therefore meriting Parliamentary debate.
Matters relevant to Standing Orders Nos. 83P and 83T of the Standing Orders of the
House of Commons relating to Public Business (English Votes for English Laws)
3.2 As the instrument is subject to negative resolution procedure there are no matters
relevant to Standing Orders Nos. 83P and 83T of the Standing Orders of the House of
Commons relating to Public Business at this stage.
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4. Extent and Territorial Application
4.1 The extent of this instrument is England, Wales, Scotland and Northern Ireland.
4.2 The territorial application of this instrument is England, Wales, Scotland and Northern
Ireland.
5. European Convention on Human Rights
5.1 The Rt Hon Claire Perry MP has made the following statement regarding Human
Rights:
‘In my view the provisions of the Greenhouse Gas Emissions Trading Scheme
(Amendment) (EU Exit) (No.2) Regulations 2019 are compatible with the Convention
rights.’
6. Legislative Context
6.1 The EU Emissions Trading Scheme Directive 2003/87/EC (“the Directive”) is currently
implemented in the United Kingdom by the Greenhouse Gas Emissions Trading
Scheme Regulations 2012 (S.I. 2012/3038) (the “2012 Regulations”).
6.2 The Commission Regulations on Monitoring and Reporting (No. 601/2012 and
2018/2066) and Accreditation and Verification (No. 600/2012 2018/2067) set out the
monitoring, reporting and verification framework required by the Directive.
6.3 This instrument will be made under section 8 of the EU (Withdrawal) Act 2018
(‘dealing with deficiencies arising from withdrawal’). The Commission Regulations
will be brought into domestic law upon exit. As a result of amendments to EU law, this
instrument will make the necessary technical fixes to S.I. 2019/107 and the Commission
Regulations governing MRV, which will be retained, and it revokes those provisions
that will no longer apply after exit day because they relate to allocation of allowances
in the EU ETS which will not be relevant to the UK after EU exit. The instrument also
amends the Greenhouse Gas Emissions Trading Scheme Regulations 2012 to update
the definition of “the Verification Regulation”.
7. Policy background
What is being done and why?
7.1 The EU ETS drives cost-effective decarbonisation in power, aviation and industrial
sectors set on greenhouse gas emissions. Participants must surrender one emissions
allowance at the end of the compliance year for each tonne of carbon dioxide (or
equivalent) emitted. Allowances can be obtained via auction, trading on the secondary
market, or free allocation; often, participants will obtain allowances through a
combination of these approaches. Allowances are only freely allocated to energy
intensive industries and aviation operators that are at risk of ‘carbon leakage’, i.e.
relocating carbon emitting operations to a state that does not participate in the EU ETS,
where climate ambition is lower, and therefore climate policy is cheaper to comply
with.
7.2 To ensure the system remains robust and transparent, emissions are reported under an
MRV framework. Participants must compile monitoring and reporting plans, to be
approved by a national competent authority, upon entry to the EU ETS. Greenhouse
gas emissions must be monitored annually in accordance with this plan. An accredited
verifier must verify that the reporting process adheres to the monitoring and reporting
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plan, and that the final emissions value provided is correct. A final, verified emissions
report is submitted and the corresponding allowances are then surrendered by the
operator to cover the total number of reported emissions. Overall, this ensures that one
tonne of carbon dioxide (or equivalent) emission equates to one allowance for all
participants.
7.3 There are reduced burdens for smaller emitters who can ‘opt-out’ of the EU ETS as part
of the UK’s ‘Small Emitter and Hospital Opt-Out’ scheme. Smaller emitters do not
trade and surrender allowances, but must adhere to an individual emissions target, and
pay a civil penalty for emissions which exceed the target. Smaller emitters can also
choose to ‘self-verify’ the monitoring and reporting process (the competent authority
will audit this). Smaller emitters also do not need to monitor smaller source streams on
site (which cumulatively emit less than 1,000 tonnes of carbon dioxide per annum).
Aviation operators with total emissions below 25,000 tonnes or emissions of less than
3,000 tonnes for flights within the European Economic Area can use simplified
verification procedures.
7.4 On 23 June 2016 the EU referendum took place and the people of the United Kingdom
voted to leave the European Union. The Government triggered Article 50 of the Treaty
on European Union on 29 March 2017 to begin the process of exit. Until exit processes
are concluded, the UK remains a full member of the European Union and all the rights
and obligations of EU membership remain in force. During this period the Government
will also continue to negotiate, implement and apply EU legislation.
7.5 The government’s priority remains leaving the EU with a deal, however robust
contingency planning must be in place. In the event of a ‘No Deal’ exit from the EU,
the UK will be unable to participate in the EU ETS. To maintain continuity for business,
the Monitoring and Reporting, and Accreditation and Verification Regulations will be
brought into domestic law under the Withdrawal Act. SI 2019/107 revoked retained EU
law relating to EU ETS surrender requirements and the provisions relating to the
surrender of allowances in the Greenhouse Gas Regulations and made technical fixes
to these regulations and the MRV framework. This instrument makes legal fixes to
retained EU law so that it operates effectively in domestic law where any additional
inoperabilities from the recently amended provisions for MRV by the European
Commission have been introduced. UK operators of stationary installations will
continue to report on their emissions. UK aircraft operators will continue to report their
emissions on the same flights as they do now (i.e. flights within the UK; flights between
the UK and the EEA; and flights within the EEA). Operators in the Small Emitter and
Hospital Opt-Out scheme will also continue to report but will not have any emissions
targets.
7.6 The UK will remain bound by its domestic carbon budgets. In the absence of the EU
ETS, the government will implement a ‘Carbon Emissions Tax’ to maintain a carbon
price for industry. This was announced at the 2018 Budget and is legislated for under
the Finance Act 2019, separate to this instrument. Therefore, the purpose of maintaining
MRV after a ‘No Deal’ exit is to ensure transparency over greenhouse gas emissions
and to record emissions which would subsequently be taxed under the Carbon
Emissions Tax. In the long-term, as stated in the Clean Growth Strategy, HMG remains
committed to carbon pricing as an emissions reduction tool and will ensure that any
future approach is at least “as ambitious” as the EU ETS and provides a smooth
transition for the relevant sectors. The UK will also remain party to international climate
change commitments. The Carbon Emissions Tax is therefore without prejudice to any
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final decision on the UK’s approach to carbon pricing in the longer term; the UK is
considering the options including continued participation in the EU ETS, a UK ETS
(linked or standalone) or a carbon tax.
7.7 This instrument applies to environmental issues which are a transferred matter for
Northern Ireland under the Northern Ireland Act 1998. The UK Government remains
committed to restoring devolution in Northern Ireland. This is particularly important in
the context of EU Exit where we want devolved Ministers to take the necessary actions
to prepare Northern Ireland for exit. We have been considering how to ensure a
functioning statute book across the UK including in Northern Ireland for exit day absent
a Northern Ireland Executive. With exit day imminent, and in the continued absence of
a Northern Ireland Executive, the window to prepare Northern Ireland’s statute book
for exit is narrowing. UK Government Ministers have therefore decided that, in the
interest of legal certainty in Northern Ireland, the UK Government will take through
the necessary secondary legislation at Westminster for Northern Ireland, in close
consultation with the Northern Ireland departments. This is one such instrument.
8. European Union (Withdrawal) Act/Withdrawal of the United Kingdom from the
European Union
8.1 This instrument is being made using the power in section 8 of the European Union
(Withdrawal) Act 2018 in order to address failures of retained EU law to operate
effectively or other deficiencies arising from the withdrawal of the United Kingdom
from the European Union. In accordance with the requirements of that Act the Minister
has made the relevant statements as detailed in Part 2 of the Annex to this Explanatory
Memorandum.
9. Consolidation
9.1 Several amendments have now been made to the 2012 Regulations, however the
Department has not made consolidating regulations at this time, given the fact that the
provisions in the 2012 Regulations are expected to be replaced by a longer-term
alternative. This is likely to lead to the revocation of this legislation, and it is therefore
more appropriate for new regulations to be made in respect of those more extensive
amendments as necessary, rather than consolidating the 2012 Regulations at this point.
10. Consultation outcome
10.1 As the European Union (Withdrawal) Act 2018 does not require a formal consultation
to take place for instruments relating to exit, a public consultation was not held because
the instrument reflects the inevitable consequence of EU exit – and so there were no
policy options to consult on – and to avoid prejudicing ongoing exit negotiations. No
substantive policy changes have been made (this is in line with the powers of section
8) and the instrument is assessed as low impact (see section 12).
10.2 Informal conversations were held between the Department, competent authorities and
devolved administrations (as this policy area falls under a devolved competence).
Devolved administrations also provided comments on drafts of this instrument, and a
ministerial consent letter was sent on 28 January 2019.
10.3 Overall, maintaining the MRV framework is not viewed as controversial. This is a
procedure which operators are familiar with and will also be used to record emissions
which would subsequently be taxed under the Carbon Emissions Tax.
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11. Guidance
11.1 A Technical Notice on HMG’s policy for ‘meeting climate change requirements if
there’s no Brexit deal’ was published on 12 October 2018 (most recently updated 11
March 2019). The EU ETS is covered in the Notice. The Notice outlines what steps
current participants of the EU ETS will need to take if the UK leaves the EU without
a deal. The Notice also explains what obligations will remain for existing participants.
11.2 As this instrument maintains an element of the EU ETS, with which existing
participants are familiar, and does not apply to new sectors or businesses, no additional
guidance will be published.
11.3 The Notice can be found here: https://www.gov.uk/government/publications/meetingclimate-change-requirements-if-theres-no-brexit-deal/meeting-climate-changerequirements-if-theres-no-brexit-deal
12. Impact
12.1 The impact of this instrument is identical to that of S.I 2019/107. The impact (i.e.
maintaining MRV) on business, charities or voluntary bodies is limited to the existing
stationary installations and off-shore installations (of which there are around 1,000),
and 140 domestic aircraft operators, who currently participate in the EU ETS in the
UK. As the intention of this instrument is to fix inoperabilities arising from the
updates by the European Commission to the regulations setting out the MRV
requirements and to maintain the status quo in terms of the operation of monitoring
and reporting, accreditation and verification; there are no estimated additional direct
costs to business arising from this amendment (compared to what they currently face
under the EU ETS regulations).
12.2 The impact on the public sector is limited to the competent authorities who administer
the EU ETS. The Secretary of State for Business, Energy and Industrial Strategy is the
competent authority for off-shore operators. The Environment Agency is the competent
authority for all operators (both stationary and aviation) in England and Wales.
Likewise, the Scottish Environment Protection Agency is the competent authority for
all operators in Scotland, and the Chief Inspector of the Department of Environment for
all operators in Northern Ireland. Regulatory costs are recovered by competent
authorities in terms of a subsistence fee – this will continue after exit with respect to
monitoring, reporting and accreditation and verification.
12.3 A full regulatory Impact Assessment has not been prepared for this instrument as
impacts are expected to be negligible. Businesses will not need to familiarise
themselves with any of the changes proposed with this instrument, as the intention is to
fix inoperabilities to maintain the status quo in terms of the operation of MRV. There
will be no additional direct costs to business arising from this amendment, compared to
what they currently face in complying with MRV as part of the EU ETS regulations.
13. Regulating small business
13.1 The legislation applies, in part, to activities that are undertaken by small businesses.
13.2 To minimise the impact of the requirements on small businesses, the approach taken is
to maintain the reduced burdens for smaller emitters (and hospitals) as part of the UK’s
‘opt out’ scheme. This is not expected to add any additional cost. See sections 7.3 and
12.3 above.
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14. Monitoring & review
14.1 As this instrument is made under the EU Withdrawal Act 2018, no review clause is
required.
15. Contact
15.1 Harriet Culver at the Department for Business, Energy and Industrial Strategy,
Telephone: 07341099068 or email: harriet.culver@beis.gov.uk can be contacted with
any queries regarding the instrument.
15.2 Paul Chambers, the Deputy Director for Emissions Trading and Industrial
Decarbonisation, at the Department for Business, Energy and Industrial Strategy can
confirm that this Explanatory Memorandum meets the required standard.
15.3 The Rt Hon Claire Perry MP at the Department for Business, Energy and Industrial
Strategy can confirm that this Explanatory Memorandum meets the required standard.
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Annex
Statements under the European Union (Withdrawal) Act
2018
Part 1
Table of Statements under the 2018 Act
This table sets out the statements that may be required under the 2018 Act.
Statement Where the requirement sits To whom it applies What it requires
Sifting Paragraphs 3(3), 3(7) and
17(3) and 17(7) of Schedule
7
Ministers of the Crown
exercising sections 8(1), 9 and
23(1) to make a Negative SI
Explain why the instrument should be
subject to the negative procedure and, if
applicable, why they disagree with the
recommendation(s) of the SLSC/Sifting
Committees
Appropriateness
Sub-paragraph (2) of
paragraph 28, Schedule 7
Ministers of the Crown
exercising sections 8(1), 9 and
23(1) or jointly exercising
powers in Schedule 2
A statement that the instrument does no
more than is appropriate.
Good Reasons Sub-paragraph (3) of
paragraph 28, Schedule 7
Ministers of the Crown
exercising sections 8(1), 9 and
23(1) or jointly exercising
powers in Schedule 2
Explain the good reasons for making the
instrument and that what is being done is a
reasonable course of action.
Equalities Sub-paragraphs (4) and (5)
of paragraph 28, Schedule 7
Ministers of the Crown
exercising sections 8(1), 9 and
23(1) or jointly exercising
powers in Schedule 2
Explain what, if any, amendment, repeals
or revocations are being made to the
Equalities Acts 2006 and 2010 and
legislation made under them.
State that the Minister has had due regard
to the need to eliminate discrimination and
other conduct prohibited under the
Equality Act 2010.
Explanations Sub-paragraph (6) of
paragraph 28, Schedule 7
Ministers of the Crown
exercising sections 8(1), 9 and
23(1) or jointly exercising
powers in Schedule 2
In addition to the statutory
obligation the Government has
made a political commitment
to include these statements
alongside all EUWA SIs
Explain the instrument, identify the
relevant law before exit day, explain the
instrument’s effect on retained EU law and
give information about the purpose of the
instrument, e.g., whether minor or
technical changes only are intended to the
EU retained law.
Criminal
offences
Sub-paragraphs (3) and (7)
of paragraph 28, Schedule 7
Ministers of the Crown
exercising sections 8(1), 9, and
Set out the ‘good reasons’ for creating a
criminal offence, and the penalty attached.
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23(1) or jointly exercising
powers in Schedule 2 to create
a criminal offence
Subdelegation
Paragraph 30, Schedule 7 Ministers of the Crown
exercising sections 10(1), 12
and part 1 of Schedule 4 to
create a legislative power
exercisable not by a Minister
of the Crown or a Devolved
Authority by Statutory
Instrument.
State why it is appropriate to create such a
sub-delegated power.
Urgency Paragraph 34, Schedule 7 Ministers of the Crown using
the urgent procedure in
paragraphs 4 or 14, Schedule
7.
Statement of the reasons for the Minister’s
opinion that the SI is urgent.
Explanations
where
amending
regulations
under 2(2)
ECA 1972
Paragraph 13, Schedule 8 Anybody making an SI after
exit day under powers outside
the European Union
(Withdrawal) Act 2018 which
modifies subordinate
legislation made under s. 2(2)
ECA
Statement explaining the good reasons for
modifying the instrument made under s.
2(2) ECA, identifying the relevant law
before exit day, and explaining the
instrument’s effect on retained EU law.
Scrutiny
statement
where
amending
regulations
under 2(2)
ECA 1972
Paragraph 16, Schedule 8 Anybody making an SI after
exit day under powers outside
the European Union
(Withdrawal) Act 2018 which
modifies subordinate
legislation made under s. 2(2)
ECA
Statement setting out:
a) the steps which the relevant authority
has taken to make the draft instrument
published in accordance with paragraph
16(2), Schedule 8 available to each House
of Parliament,
b) containing information about the
relevant authority’s response to—
(i) any recommendations made by a
committee of either House of Parliament
about the published draft instrument, and
(ii) any other representations made to the
relevant authority about the published draft
instrument, and,
c) containing any other information that
the relevant authority considers appropriate
in relation to the scrutiny of the instrument
or draft instrument which is to be laid.
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Part 2
Statements required when using enabling powers
under the European Union (Withdrawal) 2018 Act
1. Sifting statement
1.1 The Rt Hon Claire Perry MP has made the following statement regarding use of
legislative powers in the European Union (Withdrawal) Act 2018:
“In my view the Greenhouse Gas Emissions Trading Scheme (Amendment) (EU Exit)
(No.2) Regulations 2019 should be subject to annulment in pursuance of a resolution
of either House of Parliament (i.e. the negative procedure)”.
1.2 This is because this instrument is not making any provisions which fall within the list
at paragraph 1(2) of Schedule 7 of the EU (Withdrawal) Act and the instrument is
making only technical fixes to remove existing obligations under the EU Emissions
Trading System, which the UK can no longer participate in after exit day if there is no
further agreement with the EU (this is set out in sections 2 and 3.1 above). This
instrument maintains certain aspects of a policy area which is assessed as low impact
as set out in sections 12 and 13 above.
2. Appropriateness statement
2.1 The Rt Hon Claire Perry MP has made the following statement regarding use of
legislative powers in the European Union (Withdrawal) Act 2018:
“In my view the Greenhouse Gas Emissions Trading Scheme (Amendment) (EU Exit)
(No.2) Regulations 2019 does no more than is appropriate”.
2.2 This is the case because the instrument introduces no new policy and only makes
technical fixes as set out in sections 6.3 and 8.1 above.
3. Good reasons
3.1 The Rt Hon Claire Perry MP has made the following statement regarding use of
legislative powers in the European Union (Withdrawal) Act 2018:
“In my view there are good reasons for the provisions in this instrument, and I have
concluded they are a reasonable course of action”.
3.2 These reasons are set out in sections 6.3 and 8.1 above.
4. Equalities
4.1 The Rt Hon Claire Perry MP has made the following statement:
“The instrument does not amend, repeal or revoke a provision or provisions in the
Equality Act 2006 or the Equality Act 2010 or subordinate legislation made under those
Acts.”
“In relation to the draft instrument, I, Claire Perry, have had due regard to the need to
eliminate discrimination, harassment, victimisation and any other conduct that is
prohibited by or under the Equality Act 2010.”
4.2 The instrument does not raise any issues relevant to the public sector equality duty
under the Equality Act 2010 given that it makes technical changes in relation to a policy
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area which impacts on business behaviour in relation to climate change and energy
policy and does not relate to unlawful behaviour like discrimination, harassment and
victimisation and any other conduct that is prohibited by or under the Equality Act
2010.
5. Explanations
5.1 The explanations statement has been made in section 2 of the main body of this
explanatory memorandum.
