Documents considered by the Committee on 24 January 2018 Contents

5EU Emissions Trading System

Committee’s assessment

Politically important

Committee’s decision

(a) Cleared from scrutiny (by resolution of the House on 13/12/2016); (b) Cleared from scrutiny; drawn to the attention of the Business, Energy and Industrial Strategy Committee

Document details

(a) Proposal for a Directive amending Directive 2003/87/EC to enhance cost-effective emissions reductions and low-carbon investments; (b) Proposal for a Regulation of the European Parliament and of the Council amending Directive 2003/87/EC to continue current limitations of scope for aviation activities and to prepare to implement a global market-based measure from 2021.

Legal base

Article 192(1) TFEU; QMV; Ordinary Legislative Procedure

Department

Business, Energy and Industrial Strategy

Document Numbers

(a) (37003), 11065/15 + ADDs 1–3, COM(15) 337; (b) (38508), 5968/17 + ADDs 1–2, COM(17) 54

Summary and Committee’s conclusions

5.1The EU Emissions Trading System (ETS) is a central component of efforts to meet carbon dioxide reduction targets in a cost-effective and technologically neutral way. Companies can either buy allowances giving the right to emit carbon dioxide or they can act to reduce carbon dioxide and sell allowances to others. There is a fixed limit on the number of allowances available, reducing over time. Some allowances are auctioned and some allowances are available free.

5.2When the Committee last considered these documents, we noted that substantive agreement had been reached on both of these proposals for various long-term and short-term changes but that a last-minute amendment had been submitted to the aviation emissions proposal (document (b)) to protect the integrity of the EU ETS in the event of an abrupt UK exit from the EU.

5.3The Minister of State (Claire Perry) has written, explaining that the UK’s proposed approach was accepted by the EU. It has been agreed that, from 1 January 2018, UK-issued allowances will be able to be used without any change, subject either to UK operators being legally required to surrender allowances by 15 March 2019 at the latest or to continued application of Union law until at least 30 April 2019.77 The Minister describes this as a positive and pragmatic outcome which will avoid negative and detrimental impacts on the EU ETS carbon market, UK operators and exchequer revenue. On that basis, the UK decided to abstain—rather than oppose—in the Council vote.

5.4We are pleased that a satisfactory resolution has been reached to protect the integrity of the EU ETS in the event of an abrupt UK exit from the EU. Both proposals have been agreed and we have no outstanding questions. We now also clear the aviation emissions proposal from scrutiny, further to earlier clearance of the proposal on the EU ETS 2021–2030. We draw this chapter to the attention of the Business, Energy and Industrial Strategy Committee.

Full details of the documents

(a) Proposal for a Directive amending Directive 2003/87/EC to enhance cost-effective emissions reductions and low-carbon investments: (37003), 11065/15 + ADDs 1–3, COM(15) 337; (b) Proposal for a Regulation of the European Parliament and of the Council amending Directive 2003/87/EC to continue current limitations of scope for aviation activities and to prepare to implement a global market-based measure from 2021: (38508), 5968/17 + ADDs 1–2, COM(17) 54.

Background

5.5Two distinct pieces of legislation have been agreed. The first (document (a)) relates to long-term change to the EU ETS for the period 2021–2030. As explained in our Report of 6 December,78 the Government was content with the agreement reached, noting that it meets the UK’s key objectives of increasing the strength of the carbon price signal, while ensuring industrial sectors are given adequate protection from the risk of carbon leakage.79

5.6The second (document (b)) relates specifically to aviation emissions under the EU ETS. It provides that, until 31 December 2023, only intra-EEA flights (flights between aerodromes within the European Economic Area) will be included within the EU ETS. Further information on the final agreement were set out in our Report of 6 December.80

5.7In our Report of 6 December, we expressed concern about developments on future arrangements for the EU ETS post-Brexit. We asked for an update on the negotiations and the impact of any resolution, or lack of it, on UK operators. We also asked that the Government set out the final position taken on the aviation emissions proposal and the reasons for that position.

The Minister’s letter of 20 December 2017

5.8The Minister recalls that, in her letter of 14 November 2017, she explained that it was the UK’s intention to vote against the Aviation EU ETS package when presented to the Council for formal adoption. The reason to vote against was because the text included the amendment to invalidate UK allowances; and a compromise provision on the use of auction revenues which, although judged to be a remote risk, could potentially compromise fiscal sovereignty.

5.9The Minister explains that the UK responded to the amendment to invalidate EU Emissions Trading System (ETS) allowances issued by the UK, by proposing an alternative measure, which was to move forward the UK 2018 compliance deadlines (to report emissions and surrender allowances) to before the date of UK Exit from the EU in 2019.

5.10The amendment to the Aviation EU ETS proposal, says the Minister, has been implemented through amendments to the EU ETS Registries Regulation agreed by a technical-level body, the EU Climate Change Committee. The Minister comments:

“I am delighted to be able to tell you that, on 30 November, Member State representatives at the Climate Change Committee meeting formally endorsed the UK alternative approach. It was agreed that from 1 January 2018 UK issued 2018 allowances will not be identified with a country code and will be able to be used for compliance, subject to UK operators being legally required to surrender allowances by the latest 15 March 2019, or if Union law continues to apply after the EU Treaties cease to apply (i.e. if an implementation period is agreed). The Commission confirmed this in a press statement published after the meeting.

“This is a positive and pragmatic outcome which will avoid negative and detrimental impacts on the EU ETS carbon market, UK operators and exchequer revenue.”

5.11The Minister goes on to explain that the relevant domestic Statutory Instrument to bring forward the deadlines for operators to verify 2018 emissions and surrender allowances by 15 March 2019, was laid in Parliament on 6 December and was scheduled to come into force on 27 December. UK allowances will be issued as normal from the beginning of 2018 and will be able to be used for compliance.

5.12Finally, the Minister says that the UK abstained in the final vote, rather than opposing as was the original intention. This position recognised that the amendment to the EU ETS Directive still stood, but there had been a positive outcome on the implementing legislation. The agreement was adopted on the basis of sufficient support from other Member States.

Previous Committee Reports

(a): Fourth Report HC 301–iv (2017–19), chapter 12 (6 December 2017), Fortieth Report HC 71–xxxvii (2016–17), chapter 21 (25 April 2017); Fourth Report HC 324–iv (2015–16), chapter 1 (16 September 2015).(b): Fourth Report HC 301–iv (2017–19), chapter 1 (6 December 2017), Fortieth Report HC 71–xxxvii (2016–17), chapter 8 (25 April 2017); Thirty-fourth Report HC 71–xxxii (2016–17), chapter 3 (8 March 2017).


77 The EU-wide compliance deadline is 30 April each year.

78 Fourth Report HC 301–iv (2017–19), chapter 12 (6 December 2017).

79 Generally, energy-intensive industries, such as cement and steel, which might re-locate to countries which have a weaker (and therefore cheaper) regulation of emissions, thus simply transferring the emissions elsewhere rather than reducing them.

80 Fourth Report HC 301–iv (2017–19), chapter 1 (6 December 2017).




29 January 2018