Considered in Grand Committee
My Lords, I beg to move that the draft Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022, which was laid before the House on 9 March 2022, be approved.
The UK Emissions Trading Scheme, or UK ETS, was established under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions trading scheme to encourage cost-effective emissions reductions which will contribute to the UK’s emissions reduction targets and net-zero goal. This scheme replaced the UK’s participation in the EU Emissions Trading Scheme, and the 2020 order applied EU ETS rules on the monitoring, reporting and verification of emissions, with modifications to ensure that they work for the UK ETS.
The 2020 order was subsequently amended by the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2020 to include provisions for the free allocation of emissions allowances and to create the UK ETS registry. Regulations under the Finance Act 2020 established the rules for auctioning allowances and mechanisms to support market stability. The UK ETS launched on 1 January 2021 and the first auction successfully completed on 19 May. The scheme has been running well since this launch, but there is a need to continue to improve its operation.
Further amendments to the scheme were made by the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021, which was subject to the negative procedure and came into force on 7 February 2022. In broad terms, the 2021 order made various technical and operational amendments to the UK ETS across a number of scheme aspects, including providing for installations in the hospital and small emitter opt-out scheme to be able to increase their emissions targets and for installations in both opt-out schemes that return to the main scheme to benefit from free allocation.
The purpose of this order is to amend the 2020 order to address several residual operational issues identified in the development of and legislation on the scheme, and to support the scheme’s technical operation. This legislation also addresses an issue of doubtful vires relating to the previous amendments raised by the Joint Committee on Statutory Instruments.
This proposed order consists of various operational issues that were identified by BEIS, the devolved Administrations and the national scheme regulators during the establishment of the scheme but were required to be legislated for via an affirmative procedure. In particular, this order introduces a civil penalty to enforce an existing obligation to return overallocated allowances; creates an offence of intentionally obstructing the scheme regulators exercising enforcement powers; makes it clear that some enforcement powers previously introduced by the negative procedure are valid; and provides that, when an installation’s permit is surrendered or revoked, the notice given to the operator will include a requirement to surrender any deficit of allowances from previous scheme years.
The Government consulted on the policy in these regulations between July and September 2021. The consultation generated seven responses from a range of stakeholders. Responses were largely considered clarification-based, none of which impacted on the proposed policy changes. Alongside the consultation, the UK Government and the devolved Administrations jointly sought the advice of the Committee on Climate Change on the public consultation. The Committee on Climate Change reviewed the consultation on the proposed amendments and had no comments on the content.
The amendments made to the surrender and revocation notice provisions were not included in the public consultation. The department took the view that the policy represented by these amendments is within the scope of the consultation previously carried out on the future of UK carbon pricing in 2019 and is covered by the Government’s response to that consultation, which was published in June 2020. The scheme regulators were consulted and agreed with the proposed amendments. The Committee on Climate Change was advised of the additional provisions and had no comments.
The overall level of climate ambition in the UK ETS is unchanged by the proposals. There is no overall impact on the monetised costs and benefits to businesses. There is no change to the supply of allowances or the expected emissions from participants. There is also no expected change to the general administrative burden for emitters. In terms of other impacts, these provisions are also designed to address a number of specific circumstances for regulators and the registry administrator, including options to apply penalties specifically if operators or aircraft operators fail to return allowances. Again, these are not expected to apply generally, but might take effect in specific circumstances.
In conclusion, this order will help to improve the effective operation of the UK ETS. This in turn will help to ensure that the scheme plays its part in reducing emissions. I commend the draft order to the Committee.
My Lords, I do not intend to speak for long. This order is fairly uncontroversial, so I do not want to detain this packed Committee. The one thing that I want to mention is that the Minister mentioned consultation and said that only seven people responded. I have stood here many times and looked at consultations, and it always strikes me how woefully few the responses are. This order may not cover very much, but it seems to me that we have to consult. The Minister need not come back but, if only seven people respond, have we got the consultation right? That is a general comment across a number of departments. I shall not detain the Committee, because I do not have a huge objection; the order is fairly uncontroversial. However, I understand that this order amends a previous order, so the question is why we did not get it right in the first place. Perhaps the Minister can respond on that point in particular and about consultation. I will leave it there.
I thank the noble Lord for his kind comments and his contribution to this debate. I take his points about the consultation. I wondered why we had had so few responses, but it is a general point about consultations.
The UK ETS was designed by the UK Government jointly with the Scottish Government, the Welsh Government and the Northern Ireland Executive. It came into force on 1 January 2021, only 15 months ago, replacing the UK’s participation in the EU scheme. The UK Government and devolved Administrations are committed to the use of carbon pricing as a key policy lever to ensure that the UK reaches its ambitious climate targets, including net-zero emissions by 2050, cost effectively. We will in due course also consult on aligning the UK ETS cap with our ambitious net-zero target—and I am sure the officials behind me will take note of the consultation procedures for that. The UK ETS will promote cost-effective decarbonisation, allowing businesses to cut carbon where it is cheapest to do so. It will help mobilise the scale of capital investment necessary to deploy clean energy technologies and to capture new trade opportunities on the back of the energy transition. Alongside our UK ETS, we are also supporting and incentivising business to invest in key technologies such as hydrogen and carbon capture, which, as the noble Lord will know, is also supported by the Government.
The 10-point plan and the Spending Review contained key commitments for a green industrial revolution. The UK Government have committed to supporting the development of one carbon capture and storage power plant by 2030 to reduce emissions from gas-fired power stations; £1 billion for the CCS infrastructure fund to help establish four CCUS clusters by 2030; and the £240 million net-zero hydrogen fund and a hydrogen business model to deliver the ambition for 5 gigawatts of low-carbon hydrogen capacity by 2030.
It is important that we continue to support the effective delivery of the UK ETS by resolving operational and technical issues identified as the scheme continues to run. We understand the importance of stability for businesses covered by the scheme, and in establishing the UK ETS, we prioritised ensuring a smooth transition for operators from the EU ETS. The complexity and scale of the UK ETS legislation means that, inevitably, minor amendments are required following the initial setup of the scheme to ensure it operates as smoothly as possible. Some of the provisions in this legislation—for example, the penalties—require the affirmative procedure, so it was necessary to legislate for amendments through two SIs, an affirmative and a negative, to ensure that amendments could be delivered in time. We engaged with operators through a public consultation on this SI to ensure that they were aware of proposed amendments and had the opportunity to input well in advance of the legislation being made. Guidance is available for UK ETS participants, and the UK ETS authority will release further guidance as necessary to advise operators and facilitate their compliance obligation with the UK ETS.
In conclusion, the order will help to improve the effective operation of the UK ETS by introducing a civil penalty to enforce an existing obligation to return over-allocated allowances; creating an offence of intentionally obstructing the scheme regulators in exercising enforcement powers; making clear that some enforcement powers previously introduced by the negative procedure are valid; and providing that when an installation is permanently surrendered or revoked, the notice given to the operator will include a requirement to surrender any deficit of allowances from previous scheme years. Improving the effective operation of the UK ETS will ensure the scheme can play its part in reducing emissions and achieving the UK’s ambitious climate targets, including net-zero carbon emissions by 2050. I commend the draft order to the Committee.