UK ETS - What to watch out for

UK ETS - What to watch out for

With today’s announcement that a UK Emissions Trading System (UK ETS) will be established to replace the UKs participation in EU ETS, we have put together a summary of how this could impact your installation.

To aid the transition to a UK ETS and allow a possible link to EU ETS in the future, UK ETS Phase I will align with EU ETS Phase IV.

The following aspects of Phase IV will continue in a UK ETS.

• Continuation of monitoring, reporting and verification (MRV) responsibilities.

• Dynamic allocation (See our blog on activity level reporting).

• A split phase: The first part of Phase I will run 2021-2025 when there will be a re-baselining opportunity.

• Free allocation will be based on carbon leakage risk: Historical Activity Level (HAL) x Benchmark x Carbon Leakage Exposure Factor (CLEF).

• Phase IV benchmarks will be used for the first allocation period to ensure free allocation is comparable to that allocated in EU ETS.

• Article 27 and 27a schemes will remain the same (See our blog on opt-out schemes to see if they apply to your installation).

To reflect the UKs commitment to net zero the UK ETS will show greater climate ambition and work alongside policies such as the Industrial Energy Transformation Fund to support decarbonisation of industry. The UK ETS will have a separate market and carbon will be traded as UKAs. The main changes to be implemented in the UK ETS are listed below:

• There will be a 5% cap on auctioned emissions (this will not impact the level of free allocation).

• EUAs and other international credits will not be valid in UK ETS.

• A new UK registry will be set up for 2021 (see EU ETS Updates blog for more information on how registry accounts will work for the 2020 reporting year).

• For the first year of UK ETS the average UKA auction price from 1st January to 11th November will be used to calculate the civil penalty for 2021.

• There will be an Auction Reserve Price (ARP) of £15. 

• In the first two years of UK ETS the Cost Containment Mechanism (CCM) will have lower price and time triggers so very high prices can be highlighted earlier.

There will be an initial review of the UK ETS in 2023 to assess its performance in the first part of the phase. This will include a review on free allocation, exploring the possibility of using UK benchmarks and a review of sectors included on the carbon leakage list to ensure that allocation is fair and proportionate. Any necessary changes highlighted in the review will be implemented by 2026.

If you have questions on any aspect of the UK ETS please get in touch on 01484 843867 or email info@swanenergy.co.uk

 

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