Carbon & energy newsletter 12/2020
December’s newsletter focusses primarily on how the UK Government intends to replace the EU ETS in 2021. This is a much-discussed topic and a final decision is yet to be made, the two options are reviewed below along with other updates.
UK ETS or Carbon Tax?
The UK Government’s preferred option still appears to be to replace the existing EU ETS with a UK Emissions Trading System. This scheme will be very similar to the current EU ETS scheme, in terms of the requirement to monitor emissions and submit annual reports to the Environment Agency. Initially the eligibility criteria will also be the same as EU ETS. Participants will still have to purchase and surrender allowances, a proportion of these being allocated free of charge, with the remainder to be purchased (the free allocation will be along the same lines as the EU ETS scheme). The UK government will set a minimum price on the allowances of £15/tonne, and, as with EU allowances, mechanisms will be put in place to control prices should they increase significantly.
The alternative option is the implementation of a carbon taxation system. The tax regime will be applied to installations currently operating in the EU ETS. A monitoring and reporting system will still apply, but rather than purchasing and surrendering allowances, installations will pay a tax on their emissions. Sites will be allocated an annual tax emission allowance (again based on the recent EU ETS allocation process for Phase IV) and taxed on the CO2 that they emit over and above this. The UK Government will set an indicative tax rate at the start of each year. If, at the end of the year, the EU allowance price is below this figure then the tax rate will be reduced to the same level. However, if this price is higher, the indicative rate will not be increased to match. If this system is implemented, the first tax payment will be due in Summer 2022.
Other than budgeting for the new scheme, existing participants do not need to take any immediate action. The Environment Agency is currently undertaking a process of transferring existing GHG Permits into permits for the new regime.
For current EU ETS participants it is worth remembering that your EU Registry accounts will not be accessible after the 30th April 2021, so ensure that you transfer or sell any remaining EUAs once you have completed your 2020 reporting obligations.
This year has seen a huge increase in in companies declaring their intention to become Net Zero, and/or to set Science Based Targets. SLR recently delivered a presentation to over 100 members of the Food and Drink Federation explaining the actions that businesses are required to undertake to set these targets, and what these commitments actually mean in practice. The webinar can be accessed vis the FDF website, alternatively our Carbon and Energy team would be happy to discuss these topics with you.
Climate Change Agreements
The next few months are a very busy time in the world of CCAs, so please keep an eye out for any email correspondence from your sector association or the Environment Agency to ensure that all required actions are taken.
Target Period 4 Reporting: Early 2021 your sector will request your energy and production data for target period 4 (1st Jan 2019 – 31st Dec 2020) so that performance can be assessed against TP4 targets. If you pass, or alternatively ‘buy-out’ the amount of carbon in which you have failed, then you will be recertified to continue claiming CCL discount until June 2023.
Target Period 5: BEIS has confirmed a two-year extension period to the current scheme ‘target period 5’ (TP5) which will run from 1st Jan 2021 – 31st Dec 2022, with CCL discount available until March 2025. As the base year for TP5 will calendar year 2018, if your sector does not hold this data for your site, you may have been contacted recently to provide it. If so, please respond ASAP.
The deadline to submit new entrant applications to the Environment Agency was 30th November 2020. The EA are now working to process these, and if successful, new agreements will be approved and activated between 1st Jan – 31st March 2021.
Industry sectors and BEIS have been in negotiations to agree new sector target commitments for TP5. It is expected that information regarding agreed targets will be sent out during December. The EA will also be issuing a revised version of their underlying agreement towards the end of the year. By assenting to this agreement, operators are confirming that they remain eligible for inclusion in the scheme and that they wish to continue participation into TP5.
Annual Fees: Invoices for 2021 sector and EA CCA administration fees will usually be issued between December and February. Please look out for these and ensure prompt payment.
For those of you that submitted a disclosure to CDP this year, the results were published on December 8th. This also presents an opportunity to see how your score compares to your rival companies!
Remember that if you are a ‘large enterprise’ and your company reporting period commenced on or after 1st April 2019 then your company annual report will need to include a statement of your annual energy use and carbon emissions under the new Streamlined Energy and Carbon Reporting (SECR) regulations.
SLR’s Energy & Carbon Management team can provide support in all areas of carbon and energy reporting and management. If you need any assistance or require further information, then please contact Graeme Precious (Principal Consultant, Carbon and Energy) through our contact page.