Regulatory Outlook | Environment | January 2021

Current issues

Environmental aspects of UK-EU Trade and Cooperation Agreement

The UK-EU Trade and Cooperation Agreement (TCA), signed on 30 December 2020, sets the framework for future collaboration between the UK and the EU in a number of key areas, including the environment.

Some of the key environmental aspects of the TCA are as follows:

• The UK and EU have committed not to lower the overall level of environmental protection and climate protection in a way that impacts trade or investment.
• There are specific commitments in terms of greenhouse gas reductions and maintaining a system of carbon pricing.
• Either party can impose duties on the other if it believes any changes by the other party have led to an unfair competitive advantage.
• A “rebalancing mechanism” allows either party to change the baseline standards it commits to over time; if the other party fails to follow suit, it can impose tariffs in order to avoid “significant divergences” in the level playing field that impact trade or investment.
• The rebalancing mechanism is subject to review after four years, at which point if a party considers there have been too many or prolonged breaches of the mechanism then that party can instigate a review of the whole trade pillar of the TCA, which could potentially lead to suspension of elements of the
  agreed position.
• Any duties or tariffs mentioned above will be subject to review by an arbitration panel.

While the impact of these provisions may not lead to significant change for businesses in the short term, the UK government’s
commitments under the TCA will influence legislative policy in relation to the environment in the medium to long term.

Environment Bill

The Environment Bill (EB) is currently going through the parliamentary process and is expected to receive Royal Assent in mid-2021. The EB is due to have its report stage and third reading in the House of Commons, although at the time of writing no date has been set.

The EB contains a number of provisions which will, if enacted in their current form, affect regulated businesses. For example, the EB requires the introduction of long-term targets for the government in each of the priority areas of air quality, water, biodiversity, and resource efficiency and waste reduction.

The progress of the EB should therefore be closely monitored to ensure continued compliance.

In Focus: Regulation after Brexit

Office for Environmental Protection

The EB will introduce the Office for Environmental Protection (OEP). This independent body will oversee environmental governance in the UK. The OEP’s powers will include being able to take action against public authorities in relation to breaches of environmental law and to scrutinise and advise on changes to environmental law proposed by government.

As the EB was not enacted before the end of the Brexit transition period on 1 January 2021, an Interim Environmental Governance Secretariat is in place. The role of the secretariat is to undertake preparatory work for the OEP, for example starting to develop the OEP’s strategy and working framework.

In addition, any complaints submitted by citizens regarding failures by public authorities to comply with environmental law from 1 January 2021 will be assessed by the secretariat.

Biodiversity net gain

The EB also creates a new general planning condition which requires a biodiversity net gain of at least 10% to be evidenced as part of the development’s planning application. One way of meeting this is through conservation covenants, also introduced by the EB. These are agreements between a landowner and a “responsible body” (such as a conservation organisation or public body) to do or not do something on their land for a conservation purpose. A British standard for implementing biodiversity net gain has also been published, which may help businesses in achieving the required biodiversity net gain.

Emissions Trading

Following the end of the Brexit transition period, a new UK Emissions Trading Scheme (UK ETS) was launched on 1 January 2021. The transitional arrangements mean that the UK continues to participate in the EU Emissions Trading System (EU ETS) until 30 April 2021, meaning UK operators
are required to submit verified annual emissions reports for 2020 by 31 March 2021 and to surrender allowances for 2020 emissions by 30 April 2021.

Access to the Union Registry should remain for those who need to comply with the EU ETS for their 2020 emissions, although others, for example holders of trading accounts, will no longer have access. The UK government aims to have a new system in place in spring 2021 which will enable account holders to hold and trade Certified Emission Reductions and Emission Reduction Units.

New guidance published on legal definition of waste

As a result of changes made by the EU’s 2020 Circular Economy Package, operators will need to use the “harmonised end of waste test” as well as applicable case
law when considering the end of waste criteria set out in Article 6 of the Waste Framework Directive.

This approach will require the same conditions to be met as before to satisfy the end of waste criteria, but operators will also need to take into account the provisions of Article 6(2); specifically, the limit values for pollutants and any possible adverse environmental and human health impacts of using the
waste-derived material.

Draft Ecodesign and Energy Labelling Regulations 2021

The UK government has published a consultation on the draft Ecodesign and Energy Labelling Regulations 2021. This proposes updates to UK ecodesign requirements for electric motors, household washing machines/washer dryers, household dishwashers, household refrigeration and electronic
displays. It also sets out how ecodesign requirements for welding equipment and commercial refrigeration will be introduced along with the introduction of energy labelling requirements for commercial refrigeration.

Businesses should also be aware of updated government guidance published on 1 January 2021, on both eco-design of energy-consuming products and on energy labelling of energy-related products.

Minimum energy efficiency standards

The UK government has launched a consultation on raising the minimum energy performance standards for privately rented homes. Of particular note are the proposals to increase the minimum EPC energy efficiency rating to a C and for this change to be brought in for new tenancies from 2025 and for all tenancies from 2028. The consultation also seeks views on strengthening enforcement options and amending the current exemptions.
In Focus: Regulation after Brexit

What do UK businesses trading in the EU need to do now that the Brexit transition period has ended?

Operators of stationary installations who participate in the EU ETS should consider the changes brought about as a result of
the introduction of the UK ETS on 1 January 2021. Although operators who participate in the EU ETS are required to continue to do so for the 2020 compliance year, they should also start to prepare for the requirements of the UK ETS, for example to consider the new permit they will receive.

Operators should also be aware of the allocation of free allowances, due to be announced shortly, and of the requirement to submit verified Activity Level Reports by 30 June 2021.

All businesses in the UK should also be aware of the progress and content of the EB. Highlights of the bill are:

• The introduction of long-term targets in each of the priority areas of air quality, water, biodiversity, and resource efficiency and waste reduction.
• Creating the Office for Environmental Protection, an independent environmental watchdog.
• Introducing a general planning permission requirement for at least 10% biodiversity net gain.
• Creating a system of conservation covenants in order to facilitate meeting the general planning permission requirement described above.

What do non-UK businesses trading in the UK need to do now that the transition period has ended?

Non-UK businesses trading in the UK should equally be mindful of the changes brought about by the new UK ETS as well as of the measures introduced by the new Environment Bill to ensure they remain compliant.

In Focus: Regulation after Brexit

Which incoming EU laws should UK businesses be aware of, and is the UK likely to implement similar rules?

Pursuant to the TCA, the EU and the UK have agreed certain measures to preserve some degree of equivalence in terms of environmental laws and standards following the end of the transition period. An integral part of this are the provisions introduced to seek to maintain a level playing field between the parties, with the ability for either party to impose sanctions in the form of tariffs or duties in the event of non-compliance. The mechanism includes the ability to require a review of the TCA should either party consistently breach these provisions.

Are there any other areas where the UK regime might start to diverge from that of the EU? If so, what should businesses do to ensure they are prepared?

The provisions of the TCA which seek to preserve a level playing field between the parties in certain areas, including environmental protection and fighting climate change, have been criticised as narrow given that a party seeking to rely on them will need to show an impact on trade or investment. While both the UK and the EU recognise climate change as being an essential element of the agreed deal, it will remain to be seen how these provisions work in practice and how they might impact on businesses.

It is worth noting that the UK prime minister has already contacted a number of businesses asking for input as to rules and regulations they would like to see revised now that the transition period has come to an end.

Dates for the diary

Mid-2021

Royal Assent of the Environment Bill expected, heralding the establishment of the Office for Environmental Protection.

Spring 2021

UK government expected to publish Net Zero Review report and an industrial decarbonisation strategy.

31 March 2021

Deadline for operators in the EU ETS to submit verified annual emissions reports for the 12 months of 2020.

30 April 2021

Deadline for operators to surrender EU ETS allowances for 2020 emissions.

30 June 2021

Deadline for operators within the UK ETS to submit verified Activity Level Reports.

For more on what the EU-UK TCA means, across 17 areas of regulation, and what else is on the regulatory agenda, see our full Regulatory Outlook.