In our last EU Emissions Trading Scheme (EU ETS) update, "What is EU ETS and does it apply to my installation?", we introduced the scheme and talked about which installations it applies to. This update talks about how UK installations with low emissions, meeting certain criteria, are able to ‘opt-out’ of the main EU ETS scheme.
Installations in the UK with low emissions are able to ‘opt-out’ of the main EU ETS scheme if they meet the criteria below. These op-out schemes offer reduced reporting responsibilities and mean that installations do not have to surrender allowances via a registry account; however, they do have their own obligations.
The chance to opt-out only occurs at the start of a phase during the baseline exercise. The next opportunity will be during the re-baselining exercise that will occur part way through Phase IV, for the 2026-2030 period. This allows new installations or sites that have become eligible during the phase to opt-out.
Article 27 (Small Emitter and Hospital Opt-out scheme)
• Emit < 25 000 tCO2 per annum
• Thermal Capacity < 35 MW
This scheme still requires operators to report their annual emissions, but reporting is simplified, and verification is optional.
Instead of surrendering allowances, installations are given emissions targets based on an average of their historic emissions. The Phase IV targets were set using the average emissions over the baseline period (2016-2018); to obtain the 2021 target an initial reduction factor of 8.45% was applied and thereafter an annual reduction factor of 2.2%.
If installations emit less than their target there will be no fee for their emissions and the excess target will roll over to the next year. However, if the target is exceeded, a civil penalty rate will be applied to the tCO2 over the target. See our blog post on civil penalties for more information.
If installations exceed the 25 000 tCO2 threshold then they will enter the full scheme the following year and their registry accounts will be unfrozen to allow them to access free allocation if they applied for it through the NIMs.
Article 27a (Ultra small emitter scheme)
This is a new scheme that has been introduced for Phase IV, to be eligible for this scheme you must:
• Emit < 2 500 tCO2 per annum.
The installations are excluded from any formal reporting of emissions to the competent authority unless the threshold is exceeded.
Operators still need to monitor emissions and if the threshold is exceeded, they either join the Article 27 (small emitters and hospital opt-out scheme) or become full participants - depending what was specified in the NIMs.
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In the next update we will talk to you about the EU ETS Monitoring, Reporting and Verification Cycle.