Environment | UK Regulatory Outlook February 2025

Environment Agency chief regulator reports on regulated business  

The chief regulator of the Environment Agency (EA) has published a report on the performance of its regulated business in 2023-2024.  

The report discusses the need for proportionate and effective regulation that can support sustainable economic growth. While there has been improvements in performance compliance rates, the waste and water sectors were flagged as requiring further improvements. The chief regulator commented on the importance of addressing poor performance to ensure a level playing field. 

The report also proposes legislative reforms to simplify the regulatory framework, including increased funding for digital transformation.  

Government urged by Environment Agency to adopt new regulatory approach on economic growth  

The EA published a response on 24 January 2025, to a letter it received in December from the prime minister, the chancellor and the secretary of state for business and trade that identified channels through which the EA can help contribute to the government's growth mission. 

It also set out areas in which the government could assist the agency, including enabling cost recovery for its activities. 

The EA commits to supporting sustainable growth in five main areas: improving land use planning services; improving efficiency and effectiveness of permitting services in key growth areas (for example, water, net zero and waste);  creating more transparent data systems for regulation; supporting the government's approach to strategic spatial planning; and working with government to reform the regulatory framework 

The letter also welcomed the findings from an independent commission's review of water regulation (see the November 2024 Environment Regulatory Outlook) and the Circular Economy Taskforce. 

Extending the UK Emissions Trading Scheme cap beyond 2030 

The UK Emissions Trading Scheme (ETS) Authority has published a consultation seeking views on proposals to extend the cap-and-trade scheme beyond the end of phase one into a second phase from 1 January 2031.  

The ETS consultation is also seeking views on the length of phase two after 2030. The permissibility of banking emissions allowances between phase one and a post-2030 phase two is also being consulted on by the authority. 

The consultation was published on 12 February 2025 and will run until 9 April 2025.  

Statutory Instruments amending the UK ETS 

The Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2025 – order number one – and the Greenhouse Gas Emissions Trading Scheme (Amendment) (No 2) Order 2025 were both made on 5 February 2025.  

Order number one came into force on 6 February – apart from a small  number of articles that come into force on 1 January 2026 – whereas the second order will not come into force until 31 March 2025.  

Order number one amends the circumstances in which an installation or sub-installation will be deemed to have "ceased operation" for the purposes of UK ETS, as well as the treatment of installations deemed to have "ceased operation".  

Order number two moves the second allocation period for stationary installations from 2026 to 2027 to ensure alignment with the UK Carbon Border Adjustment Mechanism. The order also introduces legislative amendments following the ETS technical and operational consultation in September 2024. 

UK ETS Authority publishes response to technical and operational consultation  

The UK ETS Authority published a consultation in September 2024 regarding proposals for technical and operational changes to the UK ETS – and on 30 January it published a joint response to the consultation outcome.  

The joint response confirms the intention of the UK ETS Authority to introduce new legislation. It intends to replace the current obligation on the UK ETS Authority to publish an annual summary with an obligation to report annually on details of all UK ETS transactions three years in arrears from May 2025.  

The authority will also introduce further exceptions to the prohibition on disclosure of UK ETS information and it will a allow operators who began operations between 2 January 2021 and 1 January 2024 to apply for 'ultra-small emitter' status for the 2026 – 2030 allocation period.  

This legislation is expected to come into force on 31 March 2025 by virtue of The Greenhouse Gas Emissions Trading Scheme (Amendment) (No 2) Order 2025 (discussed above).  

Separation of Waste (England) Regulations introduce recycling exemptions 

The Separation of Waste (England) Regulations 2025 were made on 10 February 2025 and introduce two exemptions to the requirement under the Environmental Protection Act 1990 (EPA 1990) for recyclable waste to be separately collected in order to be recycled or composted.  

The first exemption allows plastic, glass and metal recyclable waste streams to be collected together while paper and card must still be collected separately by default (unless another exemption applies). The second exemption allows micro-firm entities with fewer than 10 full-time equivalent employees to be exempted from the requirements in sections 45 AZA and 45EZB EPA 1990.  

These regulations do not come into force until 31 March 2025. See our previous Regulatory Outlook for more.

New regulations for electricity generating stations require decarbonisation reports  

The Environmental Permitting (Electricity Generating Stations) (Amendment) Regulations 2025 were made on 10 February – and come into force on 28 February 2026. The regulations will introduce a new requirement for combustion plants to include a "decarbonisation readiness report" in their environmental permitting application. This requirement will apply to "new and substantially refurbishing" combustion plants, with new builds able to be decarbonised within the plant's lifetime.  

Environment Agency publishes the Water Industry National Environmental Programme  

The Environmental Agency has published the PR24 Water Industry National Environmental Programme (WINEP), which was issued to water companies on 17 January 2025 and contains a set of actions to be taken between 2025 and 2030. These are intended to aid water companies in meeting their environmental obligations.  

The WINEP is accompanied by the guidance on water industry strategic environmental requirements (WISER), which were published in May 2022. The EA is asking for all water companies to take account of the WISER strategy when developing business plans for 2025-2030.  

Financial Reporting Council publishes review of climate-related financial disclosures  

On 21 January 2025, the Financial Reporting Council (FRC) released its review of the quality of climate-related financial disclosures (CFD) of AIM and large private companies. This is the first review of the mandatory CFD reporting requirements under the Companies Act 2006.  

The FRC's review found that the quality of reporting was inconsistent and there were areas of improvement identifiable for most of the 20 companies assessed. The FRC expects the quality of CFDs to improve in the next reporting period: it is looking for the improvement will be reflected in correspondence with companies and the best practice for good quality reporting highlighted in the report.  

Government makes interim statement on plans for environmental improvement  

The government announced in July last year that it would conduct a rapid review of its Environmental Improvement Plan (EIP) before the end of 2024 – and on 30 January it released an interim statement and overview of its outcomes.  

Areas for improvement were identified, including clarifying delivery and accountability within the plan, and the aims of a revised plan were set out. There will now follow a process of engagement in order to produce and release a revised EIP.  

Defra releases outcome of call for evidence on near elimination of biodegradable waste to landfill from 2028 

The Department for Environment, Food and Rural Affairs (Defra) in May 2023 published a call for evidence to support the near elimination of biodegradable waste disposal in landfills by 2028.  

Defra has now published the outcome of the call for evidence responses. The department in its statement on 12 February said intends to consult on detailed policies, later in 2025, which explore the responses received. However, it notes that the development of these policies will be subject to other schemes such as the expansion of the UK ETS.  

City of London Law Society responds to government consultation on a UK 'green taxonomy'  

In November 2024, the government conducted a consultation on the value case for a UK "green taxonomy". The City of London Law Society (CLLS) published its response to the consultation on 14 February.  

The CLLS does not support the creation of a UK taxonomy and would prefer a flexible principles-based approach to classify "transition" finance – in line with the recommendations of the Transition Finance Market Review.  

The society notes that many UK companies fall within the scope of the Corporate Sustainability Reporting Directive (CSRD) and will report with reference to the EU's taxonomy. It recommends that companies outside of the scope of the CSRD should be able to report voluntarily under the EU taxonomy rather than a separate UK system.   

Government postpones measures to strengthen the Energy Savings Opportunities Scheme  

The government has confirmed changes to Energy Savings Opportunities Scheme (ESOS) will be postponed from phase four (compliance deadline of 5 December 2027) to phase five (2027 – 2031).  

These include refocusing the scheme to cover net zero as well as energy efficiency and changing the qualification thresholds to better align with streamlined energy and carbon reporting. 

These changes had been announced by the previous government in their response to a consultation that ran from July to September 2021 on strengthening ESOS.  

Changes that were also announced in that response and are still intended to go ahead in phase four include: removing display energy certificates and "green deal" assessments as compliance routes, including progress against action plan commitments in the ESOS assessment, and requiring explanations where action plan commitments have not been met. 

Enhanced regulatory powers introduced under the Water (Special Measures) Act 2025

On 24 February 2025 the Water (Special Measures) Act 2025 received Royal Assent. The Act gives new and strengthened powers to regulators to take action against water companies. These measures include:

• a duty on Ofwat to set rules to prohibit the payment of performance-related pay to directors and chief executives where performance fails to meet specified standards related to customer matters, the environment, financial resilience and criminal liability;
• strengthening the ability to bring criminal charges against companies and executives who obstruct regulators' investigations and including imprisonment as an available sanction to this offence;
• lowering the standard of proof for certain offences where the sanction is monetary penalties and introducing automatic fixed monetary penalties for other offences (offences to be consulted on and implemented through secondary legislation);
• a duty on Ofwat to have regard to the need to contribute to UK net zero emissions target in the performance of its powers and duties;
• a new statutory requirement on all water companies to publish annual pollution incident reduction plans.

The Act extends to England and Wales and provisions will come into force variously on 24 February 2025, 24 April 2025 and as determined by relevant implementing statutory instruments.

Wales sets out industrial strategy for timber and forestry sector  

The Welsh government has published its consultation "Making Wood Work for Wales" that sets out its first timber industrial strategy for Wales.   

The proposals for the strategy are built on the following six priorities identified for Wales: increasing timber supply, increasing resilience in forests, resource efficiency and the circular economy, instilling confidence in demand, developing sector capacity, and underpinning these measures by behaviour change and improving public understanding of productive forestry. 

The consultation is open for responses until 16 April 2025. The outcome of the consultation will inform the drafting of the strategy, which is expected in summer 2025.  

Wales issues order to bring into force its Environment Act 2024 

The Environment (Air Quality and Soundscapes) (Wales) Act 2024 (Commencement No 1) Order 2025 (SI 2025/72) was made on 23 January 2025. It will bring into force section 11 of the Environment (Air Quality and Soundscapes) (Wales) Act 2024, which requires Welsh ministers and local authorities to take steps to promote active travel as a way of reducing air pollution. Section 11 also requires them to report on the steps they have taken in the performance of that duty.   

Welsh regulations to bring in section 79 of the Environment Act 2021  

The Environment Act 2021 (Commencement No. 2) (Wales) Regulations 2025 were made by Welsh ministers on 16 February 2025. The regulations will bring section 79 of the Environment Act 2021 into force on 1 March 2025. Section 79 will amend the Water Industry Act 1991 to introduce a new requirement on sewerage undertakers to prepare, publish and maintain a drainage and sewerage management plan.  

Section 79 came into force in England on 1 September 2024 by virtue of The Environment Act 2021 (Commencement No. 9 and Transitional Provisions) Regulations 2024.