The Greenhouse Gas Emissions Trading Scheme Regulations 2012

Explanatory Note

(This note is not part of the Regulations)

These Regulations implement Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC (“the Directive”). In particular, they implement the amendments to the Directive made by Directive 2009/29/EC of the European Parliament and of the Council. These Regulations also consolidate, with amendments, and replace previous sets of implementing regulations (S.I. 2005/925 and S.I. 2010/1996) and their amending instruments.

Under the EU emissions trading scheme for greenhouse gases (“EU ETS”) an overall cap is set for emissions of greenhouse gases from specified activities. Operators must monitor and report emissions, and surrender sufficient emissions trading allowances to cover their emissions for each year. A proportion of the total number of allowances is issued free of charge to operators, and the remainder is auctioned. Operators may also buy and sell allowances on the secondary market. Following the amendments made by Directive 2008/101/EC of the European Parliament and of the Council, EU ETS has been extended to cover certain aviation activities (limited to flights arriving in or departing from the European Economic Area).

The Regulations also contain provisions implementing, where necessary, a number of instruments made under the Directive by the European Commission, in particular—

• Commission Regulation (EU) No 920/2010 for a standardised and secured system of registries pursuant to Directive 2003/87/EC of the European Parliament and of the Council and Decision No 280/2004/EC of the European Parliament and of the Council;

• Commission Regulation (EU) No 1193/2011 establishing a Union Registry for the trading period commencing on 1 January 2013, and subsequent trading periods, of the Union emissions trading scheme (“the Registries Regulation 2011”);

• Commission Regulation (EU) No 601/2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC (“the Monitoring and Reporting Regulation”);

• Commission Regulation (EU) No 600/2012 on the verification of greenhouse gas emission reports and tonne-kilometre reports and the accreditation of verifiers pursuant to Directive 2003/87/EC; and

• Commission Decision 2011/278/EU determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC.

Certain installations with low emissions (as well as installations primarily providing services to a hospital) are permitted to opt out of the emissions trading system, provided that equivalent measures are put in place to limit their emissions. These Regulations accordingly provide for equivalent measures in the case of such “excluded installations”.

These Regulations extend to the whole of the United Kingdom. However, greenhouse gas emissions trading is a devolved matter in Scotland, a transferred matter in Northern Ireland, and in Wales is an area where the Welsh Ministers exercise a wide range of executive functions. The Regulations accordingly provide for distinct “regulators” or “authorities” in relation to those different parts of the United Kingdom. The “regulator” may be the Environment Agency, the Scottish Environment Protection Agency, or the chief inspector in Northern Ireland; and the corresponding “authority” will be the Secretary of State or the Welsh Ministers, the Scottish Ministers, or the Department of the Environment in Northern Ireland. In the case of certain offshore installations, including those on the United Kingdom Continental Shelf, the Secretary of State is the regulator as well as the authority.

Regulation 2 requires the Secretary of State to review the operation and effect of these Regulations and publish a report within five years after they come into force and within every five years after that. Following a review it will fall to the Secretary of State to consider whether the Regulations should remain as they are, be revoked, or be amended. A further instrument would be needed to revoke the Regulations or to amend them.

Regulation 3 contains definitions of various expressions used in the Regulations. In particular, this regulation defines who are the “regulator” and the corresponding “authority” in relation to an installation.

Regulation 4 and Schedule 1 provide that the Regulations bind the Crown, subject to the power of the Secretary of State to certify that powers of entry may not be exercised in relation to particular Crown premises, and to provisions regarding the service of documents.

Regulation 5 and Schedule 2 provide rules for the service of notices and other documents under the Regulations.

Regulation 6 and Schedule 3 lay down requirements for the submission of applications, notices or reports under the Regulations (and under permits or aviation emissions plans), and for the determination of applications by the regulator.

Regulation 7 enables the chief inspector in Northern Ireland to delegate functions under these Regulations to other inspectors appointed under the Pollution Prevention and Control Regulations (Northern Ireland) 2003, and enables the Department of the Environment in Northern Ireland to give directions with respect to the exercise of functions under these Regulations.

Regulation 8 provides for the implementation of a number of European Commission Regulations, by designating the appropriate authorities to perform functions under those instruments (which are otherwise directly applicable in United Kingdom law). See also regulation 74 and regulation 80(2) to (4).

Part 2, together with Schedules 4 to 6, contains provisions that relate solely to stationary installations (as opposed to aircraft operators).

Regulation 9 requires a permit to be held by the operator of an installation before a regulated activity is carried out at the installation. “Permit”, “regulated activity” and “installation are defined in regulation 3(1), and “operator” is defined by regulation 3(2). A permit may be either a greenhouse gas emissions permit or an excluded installation emissions permit, and may be granted in respect of part only of an installation.

Regulation 10(1) and (3) to (5) and paragraphs 1 and 2 of Schedule 4 make provision for the application for, and the grant of, a greenhouse gas emissions permit. Regulation 10(2) and (3) to (5)), paragraph 1 of Schedule 4 and paragraph 3 of Schedule 5 make provision for the application for, and the grant of, an excluded installation emissions permit. In certain circumstances a greenhouse gas emissions permit must be converted into an excluded installation emissions permit.

Regulation 11 provides for the review, variation and consolidation of permits.

Regulation 12 and paragraph 3 of Schedule 4 make provision for the transfer of permits. A transfer may relate to all the installations covered by the permit, or may be a “partial transfer” that relates to some only of the installations covered (or to parts only of an installation).

Regulation 13 requires a permit to be surrendered if regulated activities cease to be carried out at the installation (as defined by regulation 3(3)), and paragraph 4 of Schedule 4 imposes further requirements in respect of such a surrender.

Regulation 14 allows the regulator to revoke a permit, and requires the regulator to do so where the permit has not been surrendered as required by regulation 13(1). Paragraph 5 of Schedule 4 imposes further requirements in respect of such revocations.

Regulation 15 and Schedule 5 make further provision for excluded installations. Certain requirements of these Regulations do not apply to such installations, and others apply in a modified form. Although the requirement to surrender allowances under regulation 41 does not apply in the case of an excluded installation emissions permit, Schedule 5 contains equivalent measures limiting the emission of greenhouse gases. Thus an excluded installation emissions permit sets a target for emission reduction in each year, and the operator is liable to a penalty for exceeding such a target.

Regulation 6 and Schedule 6 make provision for the free allocation of allowances to those installations that are entitled to such an allocation.

Regulations 17 to 19 make provision for the exercise of powers of entry, and the charging of fees, in relation to an offshore installation (as defined in regulation 3(1)).

Part 3, together with Schedules 7 to 10, contains provisions that relate solely to aircraft operators. These replace provisions previously contained in the Aviation Greenhouse Gas Emissions Trading Scheme Regulations 2010. This Part imposes obligations on operators defined as “UK administered operators” (previously known as “UK operators”), and on a subset of those operators defined as “UK aircraft operators” (previously known as “aircraft operators”). Subject to the qualifications noted below, a “UK administered operator” is a person who is specified as an aircraft operator to be administered by the United Kingdom in the list published by the European Commission under Article 18a(3) of the Directive; and a “UK aircraft operator” is a UK administered operator who has carried out aviation activities in the relevant calendar year. All UK administered operators are assigned to a “regulator” for the purposes of these Regulations (see regulations 27 to 29). For the purposes of this Part, a reference to a “member State” of the EU includes a reference to an EEA state (and therefore includes Norway, Iceland and Liechtenstein).

Regulation 21 requires the Civil Aviation Authority to provide any assistance or advice that may be requested by the regulator (but in doing so it may recover its reasonable expenses).

Regulation 22 requires the Secretary of State in certain circumstances to designate a person as a person to whom these Regulations apply, where that person has been omitted from the Commission's list under Article 18a(3) of the Directive. Regulation 23 allows such a person to apply to the Secretary of State to be so designated. Once designated, the person concerned will then be treated as a “UK administered operator” for the purposes of these Regulations.

Regulation 24 allows the regulator to deem a person to be a UK administered operator for the whole of a calendar year, even though that person was administered for a part of that year by another member State. However, this does not allow a civil penalty to be imposed in respect of a failure to comply with these Regulations that occurred while the person was not administered by the United Kingdom.

Regulation 25 allows the Secretary of State to designate a UK administered operator as a “Gibraltar operator”, where the Secretary of State is satisfied that the operator is regulated for the purposes of the Directive under Gibraltar legislation. The consequence is that the operator will no longer be a “UK administered operator” for the purposes of these Regulations.

Regulation 26 defines who, in a given calendar year, is to be regarded as a “UK aircraft operator” for the purposes of these Regulations. The person concerned must be a UK administered operator who has performed an aviation activity (within the meaning of Annex 1 to the Directive) in that year, or (in certain circumstances) who is the owner of the aircraft used to perform that activity.

Regulations 27 to 29 define who, for purposes of these Regulation, is the “regulator” of a UK administered operator. Where the operator is a United Kingdom company, the regulator is either the Environment Agency, the Scottish Environment Protection Agency, or the chief inspector in Northern Ireland, depending upon the location of the company's registered office. Otherwise the operator will in the first instance be regulated by the Environment Agency, with provision for a transfer to different regulator for the subsequent eight-year trading period, following an assessment of the proportion of emissions that are attributable to the relevant part of the United Kingdom.

Regulation 30 and Schedules 7 and 8 deal with the free allocation of aviation allowances. For each trading period, an existing UK administered operator is able to apply for such an allocation after monitoring and reporting their activity in the relevant benchmarking year. New UK aircraft operators, or those who have increased their activity by a specified percentage since the benchmarking year, may apply for an allocation to the special reserve set aside for that purpose. Applications are submitted to, and eventually decided by, the European Commission under the rules laid down by the Directive.

Chapter 4 of this Part deals with the monitoring and reporting of emissions from aviation activities.

Regulations 32 to 34 provide for applications to be made for a plan (“emissions plan”) setting out how emissions are to be monitored in accordance with the Monitoring and Reporting Regulation. Regulation 32(1) requires a UK administered operator to apply for a such a plan in accordance with the Article 51(1) that Regulation. This requires an application to be made 4 months before beginning aviation activity, although that deadline can be relaxed in certain circumstances. Where the less stringent deadline is relied upon, the operator must provide a satisfactory explanation for doing so (regulation 32(4)). The operator may at any time take the precaution of applying for an emissions plan (regulation 32(5)), and on first becoming a UK administered operator must either so apply or notify the regulator under regulation 33.

Regulation 35 requires emissions to be monitored each year, and a verified emissions report to be submitted to the regulator by 31st March in the following year. As in the case of stationary installations, the rules for monitoring, reporting and verification are laid down by the Monitoring and Reporting Regulation and the Verification Regulation.

Regulation 36 requires that the emission plans issued by the various regulators contain the appropriate conditions, and imposes a duty to comply with the conditions in an emissions plan. Regulation 37 provides for the variation of an emissions plan, either on application by the operator or otherwise.

Chapter 5, together with Schedules 9 and 10, provides for sanctions to be imposed on aircraft operators, in addition to the civil penalties imposed under Part 7. These non-pecuniary sanctions are of two kinds: detention (and possibly sale) of an aircraft under regulation 39 and Schedule 9; and the application for, and enforcement of, an EU- wide operating ban under regulation 40 and Schedule 10.

Under regulation 39(1) an aircraft that is operated by a UK administered operator may be detained if a civil penalty has not been paid within 6 months of the date that the penalty is due. Aircraft subject to an operating ban may also be detained. Where the aircraft is not required to be released under paragraph 3 of Schedule 9, it may then be sold following an order of the court. The proceeds of sale may be used to discharge unpaid civil penalties, certain duties and charges, and the expenses of detention.

Where all other enforcement measures have failed, a member State may apply for an EU-wide operating ban to be imposed by the European Commission under Article 16(10) of the Directive. Schedule 10, paragraph 1, provides for such application to be made by the Secretary of State, and paragraph 2 provides for the enforcement of a ban imposed as a result of such a request (or as a result of a request made by another member State).

Part 4 sets out the requirements regarding the surrender of allowances. The operator of an installation (regulation 41) or a UK aircraft operator (regulation 42) must surrender sufficient allowances to cover annual reportable emissions for each year. In the case of an installation the relevant requirements are conditions of the permit (paragraph 2(4) of Schedule 4). The allowances must be surrendered by 30th April in the year following the year in which the emissions arise. Where an insufficient number of allowances are surrendered, the deficit is deemed to be added to the total amount to be surrendered in the following year (paragraph 2(5) of Schedule 4, and regulation 42(2)). Unlike a UK aircraft operator, the operator of an installation may not surrender for that purpose “aviation allowances” allocated or auctioned under Chapter 2 of the Directive.

Regulation 43 enables the regulator to serve an enforcement notice in respect of an existing or future breach of these Regulations, of the Monitoring and Reporting Regulation, or of a permit or aviation emissions plan. The notice must specify what is required to be done to ensure compliance.

Regulation 44 supplements the power to determine the emissions of an installation (or of a UK aircraft operator) given to the regulator by Article 70 of the Monitoring and Reporting Regulation. Thus such a determination may also be made where the operator of an installation has failed to submit a surrender or revocation report under paragraph 4 or 5 of Schedule 4, and may be made for the purpose of imposing a civil penalty or enforcing certain requirements of Schedule 5. The cost of making a determination may be recovered from the operator or UK aircraft operator concerned.

Regulation 45 enables the Secretary of State, or an authority, to obtain relevant information from the regulator, and enables the Secretary of State, or an authority, regulator or registry administrator to obtain relevant information from other persons.

Regulation 46 limits the circumstances in which information obtained under the Regulations may be published or disclosed, and regulation 47 imposes restrictions on the publication of certain information where this would (in the opinion of the Secretary of State) be contrary to the interests of national security.

Part 7 provides for the imposition of civil penalties for the breach of various obligations arising under the Regulations.

Regulation 49 provides for the setting of a “carbon price” for the purposes of certain of these penalties (see below). The procedure for the service of penalty notices is set out in regulation 50, which also provides for a penalty to be recovered as a civil debt. Regulation 51 gives the regulator a discretion in imposing a penalty (other than the penalty under regulation 54(1) for a failure to surrender sufficient allowances).

Regulations 54 to 70 set out the various penalties that apply, which in some cases require a calculation to be made by the regulator. The carbon price set under regulation 49 is used in the calculation of the penalties under regulations 52, 55, 57 and 58. Regulation 52(4) requires authorities to give directions to as to the calculation of a penalty imposed under regulation 52(1).

Regulation 71 requires the regulator to publish the name of any person on whom a penalty for non-surrender of allowances has been imposed under regulation 54(1).

Part 8 provides for appeals against decisions taken under the Regulations or under the Registries Regulation 2010 or 2011.

Regulations 73 and 74 specify which decisions be appealed. There is no limitation of the grounds on which an appeal may be brought. An appeal lies to the appeal body defined by regulation 75, which will be either the First-tier tribunal, the Scottish Ministers, or the Planning Appeals Commission in Northern Ireland. Regulation 76 sets out the circumstances in which the effect of a decision is suspended following the appeal. Regulation 77 provides for the powers of the appeal body in determining the appeal, which may include substituting a new decision for the decision under these Regulations that is appealed against, or giving directions to the regulator or to the registry administrator.

Regulation 78, with Schedules 11 and 12, provides the procedure for appeals where the appeal body is the Scottish Ministers or the Planning Appeals Commission. The procedure for appeals to the First-tier Tribunal, on the other hand, is provided by the Tribunal Procedure (First-tier Tribunal) (General Regulatory Chamber) Rules 2009 F1 . Appeals are assigned to the General Regulatory Chamber of the First-tier Tribunal by virtue of article 3(a) of the First-tier Tribunal and Upper Tribunal (Chambers) Order 2010 F2 .

Part 9 supplements, where necessary, the directly applicable provisions of the Registries Regulation 2011. That Commission Regulation implements Article 19(1) of the Directive, which requires all allowances issued from 1 January 2012 to be held in a Union Registry on accounts managed by the member States. Regulation 8(1) designates the Environment Agency as the UK “national administrator” for the purposes of that Regulation. When acting in that capacity, the Environment Agency is referred to in these Regulations as the “registry administrator”. The Environment Agency also continues to operate a national registry for the purposes of the United Kingdom's obligations under the Kyoto Protocol. In that capacity it is known as the “KP registry administrator”.

Regulation 80(1) allows the registry administrator to require users of the Union Registry to comply with reasonable terms and conditions. Regulation 80(2) to (4) allocates responsibility for certain procedures under the Registries Regulation 2011, and regulation 80(6), (8) and (9) provides for circumstances in which a registry account must blocked. Regulation 80(15) enables the registry administrator to refuse to open an account, or to approve an authorised representative, where the person concerned is not a fit and proper person. Regulation 81 makes provision for the UK Registry operated for the purposes of the Kyoto Protocol.

Regulation 82 provides for the recovery by the regulator of unpaid fees, either through the court in proceedings for the recovery of a civil debt, or by means of the seizure and sale of allowances.

Regulation 83 provides for the issue of guidance by the authority to the regulator, and by the Secretary of State to the registry (or KP registry) administrator.

Part 11 provides for revocations, savings and transitional provisions.

A full impact assessment of the costs and benefits of this instrument is available from the Department of Energy and Climate Change's Heat and Industry Division (telephone [phone]), and is published alongside the instrument and its Explanatory Memorandum on the legislation website of The National Archives (http://www.legislation.gov.uk). A transposition note setting out how these Regulations implement the relevant provisions of the Directive is annexed to that Explanatory Memorandum.