Guidance

Participating in the EU ETS

Introduction to the EU Emissions Trading System including how the cap-and-trade System works, how free allowances are allocated, details on complying, the inclusion of aviation in the System and the UK’s opt-out scheme for small emitters and hospitals.

Overview

The EU ETS is the largest multi-country, multi-sector greenhouse gas emissions trading system in the world.

It includes more than 11,000 power stations and industrial plants across the EU with around 1,000 of these in the UK. These include power stations, oil refineries, offshore platforms and industries that produce iron and steel, cement and lime, paper, glass, ceramics and chemicals.

Other organisations, including universities and hospitals, may also be covered by the EU ETS depending upon the combustion capacity of equipment at their sites. Aviation operators flying into or from a European airport are also covered by the EU ETS.

This guidance explains the EU’s cap and trade system, including details of the phases of delivery of the System. It provides information on the UK’s application for Phase III free allowances via its National Implementation Measures (NIMs), as well as details of compliance and verification. There are also sections on emissions regulation for the aviation industry and the UK’s Small Emitters and Hospitals Opt-out Scheme.

Cap and trade

The EU ETS works on a ‘cap and trade’ basis, so there is a ‘cap’ or limit set on the total greenhouse gas emissions allowed by all participants covered by the System and this cap is converted into tradable emission allowances.

Tradable emission allowances are allocated to participants in the market; in the EU ETS this is done via a mixture of free allocation and auctions. One allowance gives the holder the right to emit one tonne of CO2 (or its equivalent). Participants covered by the EU ETS must monitor and report their emissions each year and surrender enough emission allowances to cover their annual emissions.

Participants who are likely to emit more than their allocation have a choice between taking measures to reduce their emissions or buying additional allowances; either from the secondary market – e.g. companies who hold allowances they do not need – or from Member State held auctions. More information is available on the EU ETS: carbon markets webpage.

It does not matter where (in terms of physical location) emission reductions are made because emissions savings have the same environmental effect wherever they are made.

The rationale behind emissions trading is that it enables emission reductions to take place where the cost of the reduction is lowest, lessening the overall cost of tackling climate change.

How trading works: a simplified hypothetical example

Historically installation A and installation B both emit 210 tonnes of CO2 per year. Under the EU’s allocation process they are given 200 allowances each. At the end of the first year, emissions of 180Mt were recorded for installation A as it installed an energy efficient boiler at the beginning of the year which reduced its CO2 emissions. It is now free to sell its surplus allowances on the carbon market.

Installation B however emitted 220Mt CO2 because it needed to increase its production capacity and it was too expensive for it to invest in energy efficiency technology.

Therefore, installation B bought allowances from the market, which had been made available because installation A has been able to sell its additional allowances.

The net effect is that the investment in carbon reduction occurs in the cheapest place, and CO2 emissions are limited to the 400 allowances issued to both installations.

Delivery phases of the Emissions Trading System

To date, three operational phases of the EU ETS have been delivered or agreed although it is envisaged the scheme will continue beyond 2020:

Phase I (1 January 2005 to 31 December 2007)

This phase is complete. Further details around this phase can be viewed on the National Archives version of the DECC: EU ETS Phase I web page.

Phase II (1 January 2008 to 31 December 2012)

Phase II of the EU ETS coincided with the first Kyoto Commitment Period. Phase II built on the lessons from the first phase, and was broadened to cover CO2 emissions from glass, mineral wool, gypsum, flaring from offshore oil and gas production, petrochemicals, carbon black and integrated steelworks.

In Phase II, each Member State developed a National Allocation Plan (NAP), which set out the total quantity of allowances that the Member State intended to issue during that phase and how it proposed to distribute those allowances to each of its operators covered by the System. Each NAP had to be approved by the European Commission. The approved UK Phase II NAP was published on 16 March 2007.

Further details around this phase can be viewed on the National Archives version of the National Archives version of the DECC: EU ETS Phase 2 web page.

Phase III (1 January 2013 to 31 December 2020)

The current phase of the EU ETS builds upon the previous two phases and is significantly revised to make a greater contribution to tackling climate change including: an EU-wide cap on the number of available allowances and an increase in auctioning of those allowances, as well as the UK’s scheme to lower compliance costs for small emitters and hospitals.

The EU cap will reduce the number of available allowances by 1.74% each year, delivering an overall reduction of 21% below 2005 verified emissions by 2020. The trajectory will be calculated from a departure point of the mid-point of Phase II and will describe a declining cap from 2013 onwards.

Phase IV (to begin in 2021).

The department continues to take stock of the value added by the System so far in order to reassess and confirm what we would like its objectives to be, and to reflect on how the EU ETS can help achieve our vision for a low carbon future. Thinking on what the EU ETS should look like in the future started in the context of the EU back-loading debate, the ICAO process for aviation and the Carbon Market Reform publication from the European Commission, and subsequent discussions on structural reform throughout 2013.

DECC are keen to involve a wide range of interested parties to inform the focus of our future work in this area. We hosted an informal stakeholder meeting on the future of the EU ETS in April 2013:

Following months of intense activity in the European climate and energy scene, and in order to expand our evidence base on how the EU ETS should be reformed, DECC held a second consultation event in January 2014. The day brought together colleagues and interested parties from a variety of sectors to discuss and explore possible options for reform of the EU ETS. The presentation, summary report, background paper and supporting information, with details regarding possible supply flexibility mechanism triggers that were discussed at the event, are available:

Please contact the DECC EU ETS team if you would like to contribute your comments and ideas about the future of the EU ETS at eu.ets@decc.gsi.gov.uk

Free allocation of allowances

All sectors covered by the EU ETS, with the exception of most of the EU power sector, are provided with free allocation of allowances in order to assist with their transition towards a low carbon economy.

In addition, more free allocation of allowances is provided to sectors at a higher risk of competition from countries without an emission reduction schemes (see section on carbon leakage in the EU ETS for more information).

Each Member State was required to submit a list (called the NIMs) of all the participants that will be included in Phase III, setting out its proposed levels of free allocation in accordance with Article 11 of the revised ETS Directive (2009/29/EC).The UK submitted its NIMs for Phase III of the EU ETS to the European Commission on 12 December 2011.

The allocations were determined in accordance with EU community-wide harmonised rules, using data provided in 2010/11 by participants due to be covered by Phase III of the EU ETS. These rules, along with relevant guidance documents, can be found in the European Commission’s decision of 27 April 2011 determining transitional union-wide rules for harmonised free allocation of emission allowances. More information is also available on the European Commission: EU ETS web pages.

In answer to preliminary queries raised by the European Commission during the first stage of their assessment of the UK’s NIMs, the UK responded by making a small number of modifications to its NIMs. The modified UK NIMs were resubmitted to the European Commission in April 2012.

Industrial free allocation for Phase III of the EU ETS

On 18 December 2013, the European Commission adopted a decision to approve the United Kingdom’s final NIMs. Free allowances in respect of emissions in 2013 were issued to installations with open registry accounts shortly after. Free allowances for 2014 were issued to installations which did not require changes to their allocation as a result of partial cessations or significant capacity reductions by 28 February 2014. We are working with the European Commission to ensure that installations which have undergone activity or capacity changes can be issued their allocation as soon as possible.

The first list below shows free allocation figures for each UK installation as approved by the European Commission on 18 December 2013, in the UK’s final NIMs. The second list shows updated free allocation figures for Phase III, taking into account any changes to the allocation agreed in the NIMs for individual installations which occurred prior to 31 December 2012, for instance due to partial cessations or significant capacity reductions. This list will be updated on an annual basis to take into account further changes to allocation over the course of the phase.

Phase III free allocation as approved in the UK National Implementation Measures

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UK National Allocation Table: Phase III free allocation including changes to allocation: 18 December 2013

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On 5 September 2013 the European Commission announced completion of the process to check and confirm the free allocation of EU ETS allowances in each Member States’ National Implementation Measures (NIMs). This includes announcement of the cross sectoral correction factor that is required to ensure that free allocation across the EU remains within the cap set in the ETS Directive. The factor will reduce the provisional allocation for each EU ETS installation by 5.73% in 2013, rising to 17.56% in 2020. The average reduction of allocation is therefore 11.58% over the period 2013-2020.

Following this announcement, Member States were required to undertake further work to finalise free allocation figures for industrial installations in Phase III of the EU ETS. This included making adjustments to allocation levels to take into account changes to carbon leakage status or capacity changes at installations since 2011.

The government recognises industry concerns around competitiveness and carbon leakage and will seek to ensure that sectors genuinely at significant risk of carbon leakage are protected. The government is concerned that those most at risk may not be compensated sufficiently in the future if current EU ETS rules are not reformed for Phase IV of the EU ETS. We continue to monitor and evaluate the risk of carbon leakage and have recently commissioned a carbon leakage research project that will report shortly. We have also responded to the European Commission’s consultation on the methodology for determination of the carbon leakage list for 2015-19.

UK response to the European Commission’s consultation on assumptions to be used for the 2015-19 EU ETS carbon leakage list (PDF, 163KB, 12 pages)

Carbon leakage and the EU ETS

Carbon leakage is a term used to describe the prospect of an increase in global greenhouse gas emissions when a company shifts production or investment outside the EU because they unable to pass on the cost increases induced by the EU ETS to their customers without significant loss of market share, in the absence of an legally binding international climate agreement.

The best way to address carbon leakage would be a legally binding international climate agreement. This would create a level playing field for industry inside and outside the EU with respect to accounting for the costs of carbon.

In the meantime, the EU ETS introduced two mechanisms to mitigate the risk of carbon leakage. First, sectors deemed to be at significant risk of carbon leakage receive 100% free allocation of allowances up to the sector’s benchmark. This is a significant source of relief, as sectors not deemed at risk will receive 80% of their allocation for free in 2013, declining annually to 30% in 2020 and 0% (i.e. full auctioning) in 2027.

The UK Government supports this in the absence of an international climate agreement. We believe the proportionate free allocation of allowances gives relief to sectors at significant risk of carbon leakage, without raising barriers to international trade.

The second mechanism allows Member States to compensate sectors at significant risk of carbon leakage as a result of indirect EU ETS costs (i.e. through EU ETS related increases in electricity prices), providing schemes are designed within the framework set by the European Commission.

Assessment of carbon leakage status for the free allocation of allowances

Sectors at risk are assessed against the criteria and thresholds set out in the EU ETS Directive and according to European Commission Decisions.

The list of sectors deemed at risk of leakage for the period 2013-2014 were agreed through the EU comitology procedure in December 2009.

The EU ETS Directive allows for a review of sectors at risk every five years, with the possibility of adding sectors to the list on annual, ad hoc basis. The next substantive review of sectors will conclude in 2014.

We are engaging with the European Commission to understand the scope of the 2014 review of the carbon leakage list to ensure clarity on their approach can be provided to UK industry at the earliest opportunity.

Call for evidence

The European Commission has issued a data request to Member States to allow them to determine the new carbon leakage list for the period 2015-2019 as required by Article 10a(14) of the EU ETS Directive.

The European Commission has much of the data needed for the assessment, but there are no official EU centralised sources containing data for electricity consumption (for EU ETS and non-EU ETS installations) or direct emissions data (for non-EU ETS) installations for the years 2008-2011. The European Commission has requested Member States provide this data to enable the assessment of carbon leakage status. For the UK to respond it is necessary to request this data from industry.

In March 2013, we published a call for evidence to allow industry the opportunity to contribute to the European Commission process. The call for evidence closed on 25 March 2013, following which data was submitted to the European Commission.

Indirect carbon leakage compensation scheme

In the Autumn Statement on 29 November 2011, the Chancellor announced that the government intended to implement measures to reduce the impact of policy on the costs of electricity for the most electricity-intensive industries, beginning in 2013 and worth around £250 million over the Spending Review period.

As part of this, the government has committed to compensate the most electricity-intensive businesses to help offset the indirect cost of the Carbon Price Floor and the EU ETS, subject to state aid guidelines as well as an increase in the rate of relief from the Climate Change Levy to 90%, benefitting electricity participants of the 54 sectors which have made commitments under the Climate Change Agreements scheme.

The European Commission adopted the revised State Aid guidelines in June 2012. The guidelines list the sectors deemed to be exposed to a significant risk of carbon leakage due to indirect emissions costs and provide details of the maximum levels of compensation that can be made available to them. Any Member State compensation scheme must be designed within the framework set by the European Commission.

In October 2012, DECC and BIS launched the Energy intensive industries compensation scheme consultation which set out our proposals for the eligibility and design of the compensation package.

The consultation, which closed in December 2012, provided an opportunity for all those interested in the package to comment on the proposals, helping us ensure that compensation is targeted at those companies who are most at risk of carbon leakage as a result of energy and climate change policies.

Following detailed consideration of the responses and state aid clearance for the EU ETS compensation package, in May 2013 we published the government’s response to the consultation and the final compensation scheme design for the EU ETS. Applications to the EU ETS compensation scheme can be made from the 3rd May 2013.

For Carbon Price Floor compensation, which remains subject to state aid approval from the European Commission, we expect to publish guidance later in the summer and begin payments shortly thereafter.

Full details can be viewed at on the Energy-intensive industries: compensation for indirect costs of energy and climate change policies page.

New Entrants Reserve

The New Entrants Reserve (NER) is a set aside of EU allowances, reserved for new operators or existing operators who have significantly increased capacity. The UK EU ETS Regulators are responsible for administering and assessing all NER applications.

Operators starting a new entrant activity must apply to the Phase III NER within 12 months of starting normal operation following start up of the new or extended activity. More information on applying to the Phase III NER is available on the Environment Agency: EU ETS New Entrant Reserve (NER) webpage.

Complying with the EU ETS

The Greenhouse Gas Emissions Trading System Regulations 2012 require all operators that carry out an activity covered by the EU ETS to hold a greenhouse gas emissions permit - in effect, a licence to operate and emit greenhouse gases covered by the EU ETS. Activities covered by the EU ETS are any of the activities listed in Annex I to the EU ETS Directive.

The EU ETS Regulators are responsible for enforcing compliance with the EU ETS Regulations, including operational functions such as granting and maintaining permits and emissions plans (for aviation), monitoring and reporting (including monitoring plans), assessing verified emission reports (and tonne-kilometre reports), assessing applications to the NER, determining reductions in allocations as a result of changes in capacity or cessation of activities, exchanging of information with UKAS on verifier activities.

Regulators include: the Environment Agency, Scottish Environment Protection Agency (SEPA), Northern Ireland Environment Agency (NIEA), Natural Resources Wales, the Department of Energy & Climate Change (DECC) for offshore installations.

For the purpose of calculating civil penalties, DECC determines the value of the EU ETS carbon price used by the regulator. The determination is published in November each year:

On 7 August 2013, we launched a consultation on a number of technical amendments to the Greenhouse Gas Emissions Trading Scheme Regulations 2012 so as to simplify and harmonize EU ETS penalties in the transition to Phase III, improve clarity and reduce the burden for businesses. The consultation closed on 19 September 2013.

Monitoring, reporting, verification and accreditation

An EU ETS operator must propose a monitoring plan when applying for a greenhouse gas emissions permit (or emissions plan for aviation operators). The monitoring plan provides information on how the EU ETS operator’s emissions will be measured and reported. A monitoring plan must be developed in accordance with the European Commission’s Monitoring and Reporting Regulation and be approved by an EU ETS Regulator. The reporting year runs from 1 January to 31 December each year.

The EU ETS requires all annual emissions reports and monitoring to be verified by an independent verifier in accordance with the Accreditation and Verification Regulation. A verifier will check for inconsistencies in monitoring with the approved plan and whether the data in the emissions report is complete and reliable.

The European Commission’s Guidance on the Accreditation and Verification Regulation aims to help operators of all stationary installations, aviation operators, verification bodies and regulators perform verifications consistently throughout the EU. It provides practical information and advice on the process and requirements for annual verification required by the EU ETS Directive, the European Commission’s Monitoring and Reporting Regulation and Greenhouse Gas permits/monitoring plans/tonne-kilometre plans.

Finding an accredited EU ETS verifier in the UK

The Accreditation and Verification Regulation requires EU ETS verifiers to meet specific requirements. In the UK, these requirements are demonstrated by being accredited. The UK Accreditation Service (UKAS) is responsible for the accreditation and supervision of verifiers in the UK and for maintaining a list of those verifiers. The list of UKAS accredited verifiers for Phase III and aviation of the EU Emissions Trading System indicates the scope of a particular verifier’s accreditation, for example in relation to particular sectors. Operators are responsible for ensuring that their verifier is accredited for the relevant scope of work. This can also be done by checking the verifier’s accreditation certificate that is available from UKAS.

It is important to note that during 2013 national accreditation bodies throughout the EU will be assessing verification bodies against the requirements of the Accreditation and Verification Regulation (Commission Regulation 600/2012/EU).

UKAS have announced their Phase III pilot programme for existing UKAS accredited EU ETS verifiers. The process of reassessment and accreditation to the requirements of the Accreditation and Verification Regulation began in April 2013 and is expected to be completed by the end of December 2013; UKAS will issue accreditation certificates on the same day for all verification bodies. For the latest information on the timescales for accreditation see the UKAS: news web pages. Operators using UKAS accredited verifiers are advised that all existing UKAS accredited verifiers have applied for re-accreditation.

Verification of closures and new entrants/capacity changes in 2013

The current accreditation approach used by the UK and the way that we have implemented the Monitoring and Reporting Guidelines means that until UKAS complete their Phase III pilot programme we can take the following approach for closures, new entrant applications and capacity changes:

  • Closures in 2013: Operators should use a verifier who is accredited by UKAS for Phase II to ISO 14065 in accordance with EA 6/03 rev3. AND the verifier must have applied to UKAS for an extension to scope for Phase III/AVR.

  • New Entrants/Capacity changes: Operators should use a verifier who is accredited by UKAS to ISO 14065 in accordance with EA 6/03 rev3 and whose scope of accreditation includes Phase III baseline data. AND the verifier must have applied to UKAS for an extension to scope for Phase III/AVR.

  • In line with section 6.2 of UK Guidance Note 4, overseas verifiers who wish to undertake baseline data verification in the UK should apply to UKAS for ‘acceptance’, in accordance with European co-operation for Accreditation (EA) agreements. UKAS will consider these applications on a case-by-case basis.

Using UK greenhouse gas inventory data in EU ETS monitoring and reporting: the country-specific factor list

The European Commission’s Regulation on Monitoring and Reporting allows nationally reported data to be used as default factors in specific circumstances.

Carbon emission factors and calorific values from the UK Greenhouse Gas Inventory (AEA, 2013) are available for annual emissions reporting for the EU ETS:

Emission factors and calorific values for 2013

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The national factors are Tier 2 and Tier 2a emission factors and net calorific values for specific fuels used by particular industries.

The data have largely been extracted from the UK Greenhouse Gas Inventory that is presented on an annual basis to the United Nations Framework Convention on Climate Change (UNFCCC). The Greenhouse Gas Inventory is developed independently to the EU Emissions Trading System. This data means the data referred to in Article 31(1) of the Monitoring and Reporting Regulation.

The factors in these tables should only be used in accordance with the requirements in an installation’s approved monitoring plan, which is part of the Greenhouse Gas permit. Guidance on provision of UK natural gas supply quality data relevant to the EU ETS provides an understanding of how national carbon emission factors from local natural gas distribution zones (or LDZ) in the UK are obtained.

Tables for previous years are available as follows:

Emission factors and calorific values for 2012 (MS Excel Spreadsheet, 154KB) Emission factors and calorific values for 2011 (MS Excel Spreadsheet, 179KB) Emission factors and calorific values for 2010 (MS Excel Spreadsheet, 165KB) Emission factors and calorific values for 2009 (MS Excel Spreadsheet, 170KB) Emission factors and calorific values for 2008 (MS Excel Spreadsheet, 165KB) Emission factors and calorific values for 2007 (MS Excel Spreadsheet, 174KB) Emission factors and calorific values for 2006 (MS Excel Spreadsheet, 171KB) Emission factors and calorific values for 2005 (MS Excel Spreadsheet, 137KB)

EU ETS non-compliance

The EU ETS Directive requires Member States to put in place a system of penalties which is effective, proportionate and dissuasive but the nature of the penalties is largely left to Member State discretion (with the exception of the penalty for failure to surrender sufficient allowances in certain circumstances).

The Greenhouse Gas Emissions Trading System Regulations 2012 set out the civil penalties to which a person is liable if they do not comply with the EU ETS. The Environment Agency has produced a number of documents about enforcement and sanctions. These are available on the Environment Agency website.

The Regulations provide for the right of appeal against decisions of an EU ETS Regulator. In England and Wales appeals for both operators of stationary installations and aircraft operators, as well as offshore installations, are heard by the First-tier Tribunal.

Appeals in Northern Ireland are heard and determined by the Planning Appeals Commission (PAC). In Scotland, the Directorate for Planning and Environmental Appeals (DPEA) in the Scottish Government hears and determines appeals on behalf of the Scottish Ministers.

Aviation in the EU ETS

The European Commission announced a temporary suspension of aviation EU ETS as it applies to international flights on 12 November 2012. Government carried out a consultation for the UK Regulations that will implement this EU ‘stop the clock’ decision on aviation EU ETS and published a response on 13 May 2013.

Aviation has been included in the EU ETS from 1 January 2012. The system covers all the CO2 emissions from flights departing from or arriving at EU airports (this also includes the EEA states Iceland, Liechtenstein and Norway). Aircraft operators will be required to monitor and report their emissions on an annual basis, and then surrender the equivalent number of allowances to their annual emissions. This will be a cost-effective means of tackling the CO2 emissions from aviation and will enable the aviation industry to grow sustainably whilst at the same time ensuring it pays for commensurate emission reductions in other EU ETS sectors.

Legislation

The EU Directive 2008/101/EC provides for the inclusion of aviation in the EU ETS. The Directive was first transposed into UK regulations in 2009, and is set to be included in the legal powers for implementing Phase 3 of the EU ETS in the Greenhouse Gas Emissions Trading Scheme Regulations 2012.

Flights affected by the EU ETS

The Directive applies to all flights departing from and arriving at EU airports. There are exemptions for certain types of flights and aircraft, which are listed in Annex I of the Directive. Each aircraft operator will be administered by a single member state, the European Commission produces an annual list showing which operators are administered by which member state.

Regulation of aircraft operators’ emissions

Although there are currently four Regulators in the UK that regulate EU ETS activities for static operators, currently only the two Regulators below regulate UK administered aircraft operators based on the location of their registered office or, where there is no registered office, based on where their highest percentage of emissions takes place.

Location of registered office Email address for enquiries
Environment Agency for England and Wales ethelp@environment-agency.gov.uk
Scottish Environment Protection Agency emission.trading@sepa.org.uk

The Environment Agency regulates the majority of aircraft operators subject to UK EU ETS regulation. The Environment Agency: EU Emissions Trading System (EU ETS) web pages provide detail on what steps aircraft operators must undertake to comply with the system.

Auctioning

Find out how to how to bid for carbon allowances and aviation allowances in forthcoming Phase III emissions auctions.

The auctioning of allowances was brought in for Phase II of the EU ETS as a more efficient allocation method than free allocation. The UK’s Phase II auctions were conducted in line with the HM Treasury Community Emissions Trading Scheme (Auctioning of allowances) (No.2) Scheme 2009. In line with provisions in the UK’s Phase II National Allocation Plan, the UK auctioned 10% of allowances. Results from Phase II auctions are available on the UK Debt Management Office website.

More information about auctioning in Phase II is available from the DECC pages on the National Archive.

Free allocation to aircraft operators

The emissions cap for aviation in the EU ETS was set at 97% of the average emissions between 2004 and 2006 in 2012 and then at 95% of the historic baseline from 2013 to 2020. In this cap 85% of the allowances will be allocated for free, this includes 3% of allowances in a special reserve for new or rapidly growing aircraft operators. Aircraft operators were able to apply for free allowances by submitting activity data (tonne-kilometre data for 2010). The European Commission: Allocation of aviation allowances in an EEA-wide Emissions Trading System web pages on allocation to aircraft operators provide further detail on the allocation process.

The UK has published the levels of free allocation to aircraft operators. This table will be updated periodically to reflect any changes such as mergers or splits between aircraft operators.

Aircraft operators’ non-compliance with the UK regulations

The UK regulations allow for the Secretary of State to designate an aircraft operator to be subject to the regulations where they don’t appear on the Commission’s list. More information is available on the National Archives version of the DECC: Aviation in the EU Emissions Trading System web page.

Historic information

Please visit the National Archives version of the Aviation in the EU Emissions Trading System web pages to see information relating to aviation/aviation appeals previously available on the DECC website.

Small Emitter and Hospital Opt-out Scheme

The UK’s Small Emitter and Hospital Opt-out Scheme allows eligible installations to be excluded from Phase 3 (2013 to 2020) of the EU ETS. The scheme has been approved by the European Commission.

Article 27 of the EU ETS Directive enables small emitters and hospitals to be excluded from the EU ETS, with the primary aim of reducing the administrative burdens on these installations. This acknowledges that the administrative costs faced by smaller emitters under the EU ETS are disproportionately high per tonne of CO2, in comparison to the costs for large emitting installations. The Directive requires that excluded installations are subject to a domestic scheme that will deliver an equivalent contribution to emission reductions as the EU ETS.

The UK’s opt-out scheme was designed in consultation with industry and aims to offer a simple, deregulatory alternative to the EU ETS whilst maintaining the incentives for emission reductions. We estimate that the scheme will offer savings of up to £39 million to industry over Phase III.

The opt-out scheme offers deregulatory savings through:

  • the replacement of a requirement to surrender allowances with an emissions reduction target
  • simplified monitoring, reporting and verification requirements (MRV), including the removal of the requirement for third party verification
  • no requirement to hold an active registry account
  • less burdensome rules for target adjustment following an increase in installation capacity

Further details on the scheme, are contained in the following documents:

The UK’s Small Emitter and Hospital Opt-out Scheme (document updated on 25 March 2013 following agreement of the EU Registries Regulation 2012)

Impact Assessment: EU ETS Small Emitter and Hospital Phase III Opt-out Scheme

Frequently asked questions on the Small Emitter and Hospital Opt-out Scheme

Participants in the opt-out scheme

Operators of installations that are excluded from the EU ETS and participating in the Opt-out Scheme instead should refer to the Environment Agency website for further guidance on complying with the requirements of the scheme.

The application period for the opt-out scheme ran from 23 May to 18 July 2012. Operators of 247 installations were approved to participate in the opt-out scheme by the European Commission as excluded from the EU ETS.

The final list of installations cleared by the European Commission

The EU ETS Directive does not provide for further installations to join the opt-out scheme.

Previous information on the development of the scheme including, the application period, policy development and the small emitters workshop held on the 12 June 2012, can be viewed on the National Archives website.

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