43.We considered a number of issues related to the UK leaving the EU and the impact this might have on the UK’s regulation of F-gases. This included: what system will be in place after the UK leaves the EU; what scope there will be for the UK to diverge from the EU and whether this is desirable; whether F-gas regulation will be affected by trade deal negotiations; whether there will be divergence on F-gas policies between the devolved administrations and Westminster; the implications for the UK’s international environmental agreements.
44.As the UK leaves the EU, depending on the outcome of the negotiations, there will be several options as to how it regulates F-gases. The Minister told us that this includes staying in the EU quota system for a transitional period or until the end of the phase-down in 2030 or the UK setting up its own system. The Government have stated that the UK will continue to use a quota system to phase down HFCs and to follow the same phase-down schedule as the current EU regulation and use 2022 as a review point to assess whether the UK was still on track and to take corrective action if required. Discussions are ongoing with the European Commission as to how the UK can split out its quota from the overall EU quota. The UK Government state that the Commission’s initial thinking would require UK companies to set up an office or appoint a representative in the EU:
Their initial ideas would entail UK companies continuing to be allocated EU quota so they could continue to supply the EU market on the same terms as other non-EU quota holders currently do (such as Chinese and US companies which hold Eu quota). That would require UK companies to set up an office or appoint an only representative I the EU.
45.EU F-gas legislation sets targets for 2030, whereas the Kigali Amendment sets targets for 2036. The EU therefore plans to revise its legislation in 2022 to bridge the gap between 2030 and 2036. The EU (Withdrawal) Bill will cut and paste the 2014 F-gas Regulation into UK law on exit day, before this review takes place. If the Government decide to seek to retain regulatory alignment with the EU’s F-Gas policies as part of the agreement on a future relationship, then the UK risks becoming a rule-taker and not a rule-maker in this area of policy.
46.The Government asserts that if there were separate UK and EU systems, this would be a relatively small additional administrative burden for businesses. However, industry told us that they would prefer the UK to stay in the EU’s quota system and feared the higher costs associated with two systems. REFCOM’s Graeme Fox told us that staying part of the EU’s regime “would probably be ideal in global terms from an equipment manufacturing point of view”. We heard from others that the EU’s quota system is stronger than the Kigali Amendment proposals, because not only does it push for deeper cuts up until 2030 but it stipulates how that target would be reached and the mechanism to achieve it. None of our witnesses believed that the UK should introduce weaker targets than the current EU quota system. While industry witnesses believed that the current system was strong enough, several, including the Chairman of the CCC, thought that a separate UK system offered opportunities to go further and faster.
47.A key element of the EU’s approach to reducing F-gas emissions is the HFC Phase-down, which depends on the EU’s HFC quota system and F-gas registry. UK Environmental Law Association queried whether UK producers and importers would continue to have access to the F-gas registry and quota system after the UK leaves the EU. Access to this system will not be decided by the EU (Withdrawal) Bill, but by the outcome of the negotiations.
48.There does not appear to be any appetite for the UK to leave the EU’s F-gas regulatory regime. The Government have said that they are planning for several scenarios, including the UK establishing its own F-gas system based on the EU’s regime. We welcome the Government’s commitment that it has no intention of lowering current emission targets. However, we do not believe that it would be a good deal for the UK if it were to replicate the EU system without a say on the rules that govern it, whilst businesses would be subject to the additional costs that two regulatory systems would impose. Businesses need certainty about whether the UK will remain in the EU system during the transitional period. We therefore recommend that the UK should seek to remain part of the EU’s quota system. This will not prevent the UK Government from being more ambitious in its efforts to reduce F-gas emissions through the measures outlined above. If, however, the Government decides to leave the EU system, it must set out concrete proposals showing how it will be able to achieve more progress on F-gases.
49.We believe that the UK should remain part of the EU’s F-gas regime. However, if the UK decides to leave and institute its own regime this will require new or existing bodies to take on additional responsibilities. The Secretary of State has issued a ministerial direction authorising expenditure as part of preparations for ‘no deal’ exit from the EU without a transition period. This includes authorisation for the department to spend £0.5m on the development of a UK system to manage the UK’s quota of HFCs, F-gases and ozone depleting substances (CFCs). Defra told us: “if the current quota system were to be split into separate UK and EU systems, businesses would face a relatively small additional administrative burden of reporting to two systems.” The Environment Agency told us that it has estimated that it will cost £250K to set up an IT system to run a UK HFC quota. The Environment Agency told us that they believed they had the resources to run the existing regime and to take on new responsibilities if the UK decided to set up its own system.
50.Setting up a UK-based system may represent poor value for money for the UK taxpayer. In its response to this report, the Government should set out its assessment of how much funding would be required to run and police a UK-based system. The Government should publish a fully costed proposal for a UK scheme, including its assessment of the expected additional costs to taxpayers, businesses and the NHS of setting up a UK-based own system. We note that the track record of government IT projects staying within budget is not good, so we have little confidence that the £250K allocated to run a UK system will be sufficient.
51.We warned in our previous report—The Future of the Natural Environment after the EU Referendum, about the dangers of ‘zombie legislation’ and the prospect of transposed EU law not being updated or enforced by an appropriate governance body. We are therefore concerned as to how the Government will replicate the overarching oversight currently provided by the European Environment Agency, the European Commission and the European Court of Justice to ensure that the UK Government keeps to its commitments and enforces compliance. We were told that the Environment Agency and regulators in the other nations will become the enforcement bodies and that the Government will consult in early 2018 on the overall governance structure and the environmental principles that will underpin it.
52.We heard evidence that the MAC Directive may have been incorrectly, or not completely transposed into UK law. Unlike EU Regulations, which are directly applicable EU law, Directives must be transposed into UK law, usually through statutory instruments made under section 2 of the European Communities Act 1972. UK Environmental Law Association told us that parts of the MAC Directive have not been transposed: “Article 4(2) of the mobile air-conditioning directive requires member states to ensure that manufacturers supply information on the type of refrigerant used in air-conditioning systems fitted to new motor vehicles. We cannot find […] any national legislation directly reflecting that.” The Government have said that the EU (Withdrawal) Bill will ensure that “the same rules and laws will apply the day after exit day as they did before”. However, as UKELA pointed out in their evidence, the EU (Withdrawal) Bill will not cut and paste Directives which have not been transposed into UK law, meaning parts of the MAC Directive could be lost after exit day.
53.It is essential that there is independent oversight of Government policy to ensure the UK meets its obligations, for instance hitting HFC reduction targets agreed under the EU’s quota and under the Kigali Amendment to the Montreal Protocol. We have separately called for evidence on the Government’s proposals for the structures and principles which will underpin the governance of environmental policy across a range of areas, including F-gases. We welcome the Environment Secretary’s promised consultation on a new statutory body to enforce environmental law after exit day but we are concerned by its delay. We reiterate our previous recommendation for an Environmental Protection Act before the UK leaves the EU to ensure that EU environmental law does not end up as ‘zombie legislation’, whereby EU legislation transposed into UK law is not monitored, updated or enforced because it relies on EU policies and institutions. The Government’s approach to the EU (Withdrawal) Bill should recognise this risk.
54.A number of witnesses, including the Chair of the Committee on Climate Change, expressed concern that the UK might be put under pressure to lower its targets on reducing high GWP HFCs as a bargaining position for agreeing bilateral trade deals. Lord Deben told us:
“The most difficult thing in that trade [negotiation] is keeping standards up. If you are trying to negotiate, as I did with the United States, the United States does not agree that we should be able to say what the standards of the things that they sell to us are […]. They do not see that we are the purchasers. If it is a question of a trade deal, you have to accept that the United States does not go in for accepting higher standards on the other side, which they see as a trading block. It has been longstanding; it is not just Mr Trump. It has always been true. That is why we have never been able to get a sensible deal with the United States on a whole range of things […].”
55.This might include trade deals with countries who have lower standards or who have stockpiled large amounts of higher GWP refrigerants.
56.We welcome the Secretary of State’s remarks to our Committee and elsewhere that he will not allow trade talks to dilute the UK’s environmental standards. Reducing high GWP HFCs are part of the commitments we have made under the current EU targets (which the Government has said it will honour after we leave the EU) the Kigali Amendment to the Montreal Protocol and forms part of the package under the Kyoto Protocol and Paris Agreement to reduce our GHG emissions. We will hold the Government to their commitments.
57.If the UK leaves the EU Quota system, it will have to agree with the rest of the EU the proportion of the quota that UK companies will take with them. Once outside the EU system, UK companies will not be able to trade quotas with their European counterparts. This would remove the flexibility UK businesses have within the EU Quota system. Leaving the EU Quota system would also remove the flexibility of third countries who would lose their flexibility to trade their quota with the EU, and they may not welcome this. We note that any deal that would allow the UK to continue to participate in the EU’s quota system as a non-Member State would have to be agreed by third countries as well as the EU. This challenge may also apply to the EU’s Emissions Trading Scheme.
58.Though we recommend that the UK should remain within the EU’s HFC Quota system, if the Government decides to leave the EU’s HFC Quota system it must set out how UK businesses will manage their HFC quotas and not be put at a commercial disadvantage in relation to their European counterparts.
59.After the UK leaves the EU, the level playing field across the UK provided by the EU’s F-gas Regulation and HFC Quota system might be replaced by policy divergence between the devolved legislatures of the UK. This is because, with the repeal of the European Communities Act 1972, the duty upon the devolved institutions not to act incompatibly with EU law will be removed. Without any provision made expressly by UK primary legislation, the devolved legislatures will be free to legislate in those areas of devolved competence, such as the environment, which had previously fallen under the jurisdiction of the EU and been subject to the primacy of EU law. The refrigeration industry told us that they feared such divergence might lead to additional costs if different policies and requirements applied in the different nations of the UK. The Minister agreed that separate regulations for the different nations of the UK would be challenging for business and that one system for the whole of the UK would be preferable. However, she told us that negotiations were ongoing between the UK Government and the devolved Administrations and that no agreement had been reached on how a UK-wide system might be managed. She suggested that companies might present their concerns to the devolved Administrations, she told us: “I would encourage industry to speak to the Governments of Scotland, Wales and Northern Ireland to encourage them to say one system would be good.” However, the Government has stated that in the absence of an agreement on a range of devolved issues, including F-gases, where it believes national frameworks are required, it has decided to temporarily retain powers following the UK leaving the EU.
60.The Government and the devolved administrations need to be pro-active in developing UK systems of future environmental enforcement as the UK leaves the EU. The ongoing uncertainty, along with the challenges that withdrawal from the EU Quota system pose, creates uncertainty for industry. We agree with the Minister that it would be best to have an overarching body to set and monitor UK-wide F-gas targets, based on a consensual agreement between the devolved legislatures and Westminster. The Government should publish in its response to this report a timetable for negotiating with the devolved Administrations on how F-gas emissions will be managed after the UK leaves the EU.
61.Another aspect of devolution that we considered was the position of Northern Ireland and “full regulatory alignment”, whereby Northern Ireland would have ongoing alignment with the Republic of Ireland, and by implication the EU, to avoid a hard border while at the same time maintaining alignment with the rest of the UK. There has been much debate as to how and whether these two things can be reconciled if the UK has a different regulatory regime from the EU. The answers to these questions are beyond the scope of this inquiry. However, the Government has indicated that the environment is an area where full regulatory alignment would apply.
62.We are concerned that, if UK and EU policies diverge in the future, Northern Ireland could become a back door for appliances containing F-gases which have been restricted or banned on only one side of the border.
63.We heard from several academic experts on whether the UK’s withdrawal from the EU might cast doubt on its continued membership of mixed multilateral international environmental treaties, such as the Montreal Protocol, where both the UK and the EU have signed such agreements. We were told that it was not explicitly clear where the split between the competences assumed by the EU and UK lay. There was agreement that it was unlikely that the UK would drop out of the Montreal Protocol, and that if this did happen it should be relatively straightforward for the UK to reapply. However, we were cautioned that more complex agreements, such as the Kyoto Protocol, will be more challenging. The academics maintained that the UK’s withdrawal from the EU and its impact on the status of the UK’s international environment agreements represented “uncharted waters”, and that uncertainty had not been adequately addressed by the Government. They suggested that the Government could undertake and publish legal analysis on the status of mixed multilateral international environmental agreements as the UK leaves the EU, and produce a joint statement with the EU to clarify that the UK was fully assuming those competences under those treaties. The Minister told us that previous Government statements sufficed and that a further statement would not add anything. In February 2018, the Government published a technical note on international agreements, which proposed that third country agreements, which apply to the UK in its capacity as an EU Member should continue to apply to the UK as it left the EU. However, this applies to bilateral agreements and not mixed multilateral agreements and only for the transition period, not after the UK has left the EU.
64.Whilst it seems unlikely that the UK will drop out of the Montreal Protocol and similar international multilateral mixed environmental agreements when it leaves the EU, there is nevertheless uncertainty as to what will happen after exit day. Some complex international agreements, such as the Kyoto Protocol, will a present significant challenge. The Government should undertake and publish legal analysis on the status of the UK’s international environmental treaties after it leaves the EU within two months of this Report being published. The Government should also give serious consideration to issuing a joint statement with the EU to provide clarity that the UK will fully assume its obligations under these treaties.
115 Q162 Dr Thérèse Coffey (Parliamentary Under Secretary of State, Department for Environment, Food and Rural Affairs).
116 Q178 Dr Thérèse Coffey (Parliamentary Under Secretary of State, Department for Environment, Food and Rural Affairs). The 2022 Review point is also built into the EU’s HFC Quota System.
117 Defra, Initial European Commission ideas on how to split the EU and UK F-gas quota system, (October 2017).
118 As Above.
119 RFG0009 (Defra).
120 Q131 Graeme Fox (REFCOM) and Q131 to Q132 Martyn Cooper (Federation of Environmental Trade Associations).
121 For a summary of the Kigali Amendment proposals see Box 2, p 13.
122 For example: Q141 Martyn Cooper (Federation of Environmental Trade Associations); RFG0011 (Mexichem); RFG0002 (Pure Cold Ltd) supported the phase-down but not the quota approach and preferred the use of a tax on high GWP HFCs instead.
123 Q137 Graeme Fox (REFCOM).
124 Q85 and Q138 Clare Perry (Environmental Investigation Agency).
126 RFG0014 (Dr Annalisa Savaresi).
127 See: .
128 As above.
130 Q172 Liz Parkes (Environment Agency).
131 Q168 to Q175 Liz Parkes (Environment Agency); RFG0009 (Defra).
132 EAC, , (HC 599; January 2017), pp 15–20.
133 Same as above. See also: Q42 Dr Annalisa Savaresi; RFG0014 (Dr Annalisa Savaresi). Professor Richard Macrory and Andrew Jordan in their evidence to the Lords EU Energy and Environment Sub Committee, feared that in the absence of EU institutions there might be an over-reliance on judicial review, which is expensive and time-consuming—House of Lords EU Energy and Environment Sub-Committee, , Wednesday 26 October 2016, Q10.
134 Q176 Liz Parkes (Environment Agency) and Dr Thérèse Coffey (Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs). See Defra, , (November 2017). See also: Maria Lee, , (January February 2018).
135 HC Deb 07 September 2017 vol 628 col 342
137 See Box 2, p 13 for a summary of the Montreal Protocol and Kigali Amendment to the Protocol.
138 Q28 Lord Deben (Committee on Climate Change). See also on wider concerns that leaving the EU might lower the UK’s environmental standards: James Trapper, , The Guardian, (January 2018).
139 Q110 Clare Perry (Environmental Investigation Agency).
140 See EAC, , (HC 544; November 2017), Q99 and. EAC, , 30 November 2017. See also: Business Green, , (January 2018). The Minister also confirmed to the Committee that the Government had no intention of lowering any EU emission standards as result of trade deals—Q166 Dr Thérèse Coffey (Parliamentary Under Secretary of State, Department for Environment, Food and Rural Affairs).
141 See for example: Richard S J Tol, Policy Brief—Leaving an Emissions Trading Scheme: Implications for the United Kingdom and the European Union, Review of Environmental Economics and Policy, Volume 12, Issue 1, 1 February 2018, pp 183–89; Baran Doda, , Grantham Research Institute on Climate Change and the Environment, (February 2017).
142 For a discussion of how leaving the EU might impact on devolved environmental matters see: Greener UK, , (November 2017) House of Lords EU Energy and Environment Sub-Committee, , (HL Paper 109), pp 50--53. For an overview of how leaving the EU might impact upon devolution more generally see for example: House of Commons Public Administration and Constitutional Affairs Committee, , (HC 484; November 2017); Richard Rawlings, , The Constitution Unit, (July 2017); Akash Paun and George Miller, , Institute for Government, (October 2016); Robert Hazell and Alan Renwick, , UCL Constitution Unit, (May 2016);
143 See: House of Lords Committee on the Constitution, , (HL Paper 123; March 2017), para 112, p 35. See also House of Lords European Union Committee, , (HL Paper 9; July 2017), p 3; House of Lords Committee on the Constitution, , (HL Paper 69; January 2018).
144 Q149 Graeme Fox (REFCOM) and Martyn Cooper (Federation of Environmental Trade Associations).
145 Q192 Dr Thérèse Coffey (Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs).
146 Q192 and Q193 Dr Thérèse Coffey (Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs).
147 Q193 Dr Thérèse Coffey (Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs).
148 See Defra, , (8 March 2018). The Government’s analysis of which areas should be temporarily retained and not temporarily retained can be found . For commentary and analysis see: BBC News, , (March 2018); Daily Telegraph, , (March 2018); The Guardian, , (March 2018).
149 For a discussion on the meaning of ‘regulatory alignment’, see: BBC News, , (December 2017); David Allen Green, , Financial Times, (December 2017).
150 See House of Commons Library, , (December 2017), pp 31–41; House of Lords Library, (January 2018), pp 16–18; Anthony Costello, , LSE European Institute, (January 2018); Business Green, , (December 2017).
151 The Prime Minister noted on 11 December 2017 that the environment would be one of six sectors, alongside waste and water management, the electricity market, agriculture, and questions relating to road and rail transport, where there would be ‘full regulatory alignment’. HC Hansard, 11 December 2017, .
152 For a discussion of mixed multilateral international environmental agreements and the debate about how they might be affected by the UK leaving the EU see: House of Commons Library, , (January 2018). See also: UKELA, , (September 2017); House of Commons Library, (5 January 2017); Reed Smith Client Alerts, , (6 October).
153 Q42 Professor Panos Koutrakos; RFG0014 (Dr Annalisa Savaresi).
154 Q44 and Q45 Professor Richard Macrory. Q47 Dr Annalisa Savaresi noted that it was unlikely that the UK would drop out of mixed multilateral international environmental agreements because by their very nature they were inclusive to achieve their global goals.
155 Q52 and Q53 Dr Annalisa Savaresi. Q47 Professor Richard Macrory noted that if there was a dispute between exiting parties to the Montreal Protocol or other mixed multilateral international environmental agreements, the UK would have recourse to a dispute resolution mechanism via the Vienna Convention and ultimately the International Court of Justice. Q47 Dr Savaresi suggested that in the first instance the UK could use the Meeting of Parties of a mixed international environmental agreement to settle a dispute.
156 Q42 Professor Panos Koutrakos; Q44 and Q50 Professor Richard Macrory; Q51 Dr Annalisa Savaresi; RFG0014 (Dr Annalisa Savaresi); RFG0014 (Dr Annalisa Savaresi).
157 Q54 Dr Annalisa Savaresi; RFG0012 (UKELA) See also: House of Lords EU Energy and Environment Sub-Committee, , Wednesday 26 October 2016, Q10 (Professor Richard Macrory). Professor Macrory highlighted differences of opinion between legal experts.
158 Q45 and Q46 Professor Richard Macrory; RFG0012 (UKELA).
159 Q48 Professor Richard Macrory.
160 Q48 and Q50 Professor Richard Macrory; Q49 Professor Panos Koutrakos; Q50 Dr Annalisa Savaresi; RFG0014 (Dr Annalisa Savaresi).
161 Q203 Dr Thérèse Coffey (Parliamentary Under Secretary of State, Department for Environment, Food and Rural Affairs); RFG0009 (Defra).
162 Department for Exiting the European Union, , (February 2018).
Published: 25 April 2018