Environment | UK Regulatory Outlook January 2025

More clarity in the Voluntary Carbon Market  

The Voluntary Carbon Market (VCM) is a marketplace where companies, organisations or individuals can buy and sell carbon credits on a voluntary basis, outside of regulatory or compliance frameworks. These carbon credits represent the reduction or removal of one tonne of carbon dioxide (CO₂) or its equivalent in other greenhouse gases (GHGs) from the atmosphere. However there is still some uncertainty regarding the credibility of the market.  

On 15 November 2024, the Department for Energy Security and  Net Zero (DESNZ) published six principles to encourage responsible participation in the voluntary carbon markets. These state that organisations should: 

• only use voluntary market credits after making every reasonable effort to reduce their own impacts and those of supply chain partners; 
• utilise high integrity credits; 
• measure and disclose planned use of credits as part of their sustainability reporting; 
• follow best practice guidance when disclosing their transition plans, including long-term and interim targets and strategies; 
• ensure green claims are accurate; and 
• collaborate with others to support the development of high-integrity markets. 

The introduction of these principles indicates the government's commitment to making the VCM a reliable tool for businesses to use to achieve their net-zero targets. This is further shown through the announcement that the government will consult on these principles and their implementation, as well as the integrity of the market more generally, in early 2025. It is likely that the use of the VCM will increase in 2025 as these principles add clarity for prospective market participants.  

Continued drive towards net zero 

Net Zero Transition Plans open for consultation 

In April 2022, the Transition Plan Taskforce (TPT) was created to develop a framework to help companies with their climate transition plans. The TPT's Final Disclosure Framework offers voluntary guidance for creating these plans. Currently, UK companies are not required to publish transition plans. However, the government plans to consult on its commitment to mandate certain UK companies to produce transition plans. 

As we move into 2025, companies should consider how they will transition to achieve net zero. 

UK's new climate target for 2035 under its nationally determined contribution and a commitment on delivering 30by30 

On 12 November 2024,  the government announced the UK's new climate target for 2035, stating that the UK must reduce its territorial greenhouse emissions by 81% from 1990 levels by 2035. Additionally, the Department for Environment, Food and Rural Affairs (DEFRA) has published an updated policy paper outlining how the government will achieve its target to protect 30% of the UK's land for biodiversity by 2030. 

These updated targets will necessitate rapid government action to address climate change and achieve net zero. As we move into 2025, we can expect government policy to continue evolving to drive progress towards net zero. 

Implementation of the Finance Bill 2025 following the Autumn Budget 

Following the Autumn Budget released in October 2024, the first version of the Finance Bill 2025 was published. The bill is currently at the committee stage of the parliamentary process. Once enacted, this legislation will have an impact on several environmental areas in 2025: 

• Firstly,  the government announced that the UK plastic packaging tax rates (PPT) will increase with CPI inflation for 2025-2026. This tax applies to the import and production of plastic packaging containing less than 30% recycled content. Companies should be aware of this tax increase as they move into the new year. 
• Secondly, the government has confirmed that increased landfill tax rates will take effect from 1 April 2025, aligning with the retail price index (RPI). The policy aims to reduce the amount of material being disposed of at landfill sites and the incentivise the use of alternative, non-landfill options. 

In 2025, companies should prepare for these tax increases and consider their impact throughout their supply chains.  

The Environment Agency has published new guidance on new non-statutory regulatory appeals process 

On 3 December 2024, the Environment Agency published new guidance on how to appeal a regulatory decision. The guidance explains the procedure for challenging a recent regulatory decision or a failure to act in accordance with the Regulator's Code. It details what constitutes a regulatory decision and explains the stages of the regulatory appeals process: 

• Pre-regulatory appeal discussion (Stage 1): applicants need to raise their concerns with the officer or team responsible for the regulatory decision within 14 calendar days of the decision date. 
• Regulatory appeal (Stage 2): if the issue remains unresolved, a regulatory appeal must be submitted within 28 calendar days of receiving the Environment Agency's stage 1 response.  

Following this, the Environment Agency will conduct an initial screening review, then allocate the regulatory appeal to an impartial person who was not involved in the original decision, who will review the decision and aim to provide an outcome within 28 days. For any further assistance with this process, please get in touch with Osborne Clarke's environment team. 

Developments to the UK Emissions Trading Scheme  

The UK Emissions Trading Scheme (UK ETS) is a crucial tool in the UK's strategy to reduce greenhouse gas emissions and transition to a low-carbon economy. By setting a cap on emissions and enabling the trading of allowances, it provides both environmental and economic benefits, encouraging businesses to reduce their carbon footprint. 

Consultations expand the scope of the UK ETS 

On 28 November 2024, the UK ETS Authority released two consultations detailing an expansion in the scope of the UK ETS.  

• The maritime sector consultation proposes including the maritime sector in the UK ETS starting from 2026. 
• The second consultation suggests incorporating the non-pipeline transport of CO2 into the UK ETS. 

The expansion of the UK ETS into these additional sectors demonstrates the government's commitment to advancing towards net zero and leveraging this trading scheme. 

Response to free allocation consultation 

In December 2023, a consultation was launched focusing on the free allocation review of emissions allowances under the UK ETS. The aim is to better identify those most at risk of carbon leakage and ensure a fair distribution of free allocations. The government responded to this consultation on 28 November 2024, confirming proposals to be implemented in 2025: 

• Ensuring that participants who permanently cease their operations do not receive excess free allocation in their final year. 
• Making sure that the free allocation received in a participant's final year of operation is proportionate to their actual activity levels.  
• Ensuring that the free allocation received in a participant's final year of operation is proportionate to their actual activity levels.  

These changes are expected to come into force in February 2025 following the enactment of the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2025. 

Response to consultation aligning the second free allocation period of UK ETS with CBAM 

In September 2024, the government launched a consultation to align the second free allocation period of the UK Emissions Trading Scheme (ETS) with the introduction of the UK Carbon Border Adjustment Mechanism (CBAM). On 16 December 2024, the Department for Energy Security and Net Zero (DESNZ) published its response. 

It has confirmed that the start of the second allocation period will be moved from 2026 to 2027, aligning it with the introduction of the UK CBAM. 

A two-stage application process for the second allocation period will be introduced: 

• First stage (1 April to 30 June 2025): Operators wishing to apply for free allocation will submit a baseline data report; 
• Second stage (1 April to 30 June 2026): Operators will confirm their intention to continue their free allocation application.  

This effectively extends the current allocation period to include 2026. However, those wishing to apply for second free allocation period must begin the first stage in 2025. 

New climate finance goal from COP 29 

From 11 to 24 November 2024, the international climate conference (COP 29) was held in Baku, Azerbaijan. The parties to COP 29 came to a new climate finance agreement, the New Collective Quantified Goal on Climate Finance (NCQG). This agreement aims to: 

• Triple climate finance from developed countries to developing countries to $300 billion annually by 2035; 
• Increase total climate finance to developing countries to $1.3 trillion annually by 2035, including public, private and multilateral development bank sources (Baku Finance Goal); 
• Encourage voluntary climate finance contributions from large emerging economies through South-South cooperation.  

This key finance outcome presents some international action against climate change.

First reports under the Corporate Sustainability Reporting Directive 

Please see ESG.

Carbon Border Adjustment Mechanism (CBAM): looking ahead

Please see ESG.

Businesses have a preparation window for the EU Deforestation Regulation 

Please see ESG.

Will a green taxonomy be introduced in the UK? 

Please see ESG.

UK Sustainability Reporting Standards to be consulted on in Q1 2025

Please see ESG.