Environment | UK Regulatory Outlook October 2024

UK ETS publishes consultation on aligning free emissions proposal with UK CBAM in 2027

On 26 September 2024, the Department for Energy Security and Net Zero (DESNEZ) and the devolved administrations of the UK Emissions Trading Scheme (UK ETS) released a further consultation. This follows the initial consultation published in December 2023, which focused on the free allocation review of emissions allowances under UK ETS. The goal is to better identify those most at risk of carbon leakage and ensure fair distribution of free allocations.

This further consultation, which closed on 11 October, proposed shifting the start of the second allocation period from 2026 to 2027. In response to feedback from the original consultation, the aim is to align changes to free allocation with the introduction of the UK Carbon Border Adjustment Mechanism (CBAM) in 2027.

The effect of the proposal would be as follows:

• baseline data reporting exercise will continue as planned form 1 April to 30 June 2025;
• applications for the second free allocation period will be made in 2026;
• updated lists of installations with hospital or small emitter (HSE) and ultra-small emitter (USE) status will come into effect from 2026, with the application window for inclusion on these lists open from 1 April to 30 June 2025; and
• changes to the current rules regarding the electricity generator classification will come into effect in 2026.

Further amendments on monitoring and reporting greenhouse gas emissions

On 27 September 2024, Commission Implementing Regulation (EU) 2024/2493 was published in the Official Journal of the European Union. The further regulation amends Implementing Regulation (EU) 2018/2066, which governs the monitoring and reporting of greenhouse gas emission (GHG) emissions under the EU Emissions Trading System (EU ETS). The regulation applies retrospectively from 1 January 2024, with many provisions taking effect from 1 July 2024 and 1 January 2025.

The regulation introduces amendments regarding:

• Monitoring and reporting GHG emissions from: biomass fuels, renewable fuels of non-biological origin (RFNBOs), recycled carbon fuels (RCFs) and synthetic low-carbon fuels; activities including oil refining, production of iron, alumina and hydrogen, and the transport of carbon dioxide (CO2) other than by pipeline for geological storage (these activities were included in the scope of the EU ETS by the EU ETS Amending Directive 2023); activities within the scope of the EU Emissions Trading System: fuel for heating buildings, road transport and non-EU ETS industry.
• The non-CO2 effects of aviation.
• Emissions of GHGs that are not directly released into the atmosphere.

ESMA publishes its first annual report on EU Carbon Markets

The European Securities and Markets Authority (ESMA) has published its inaugural annual report, "EU carbon markets 2024".

Key findings:

• Prices in the carbon market have been volatile, with a decline observed since the beginning of 2023.
• Financial intermediaries purchase the majority of emission allowances at auctions.
• Most secondary trading occurs through derivatives.

The ESMA will publish a new report annually.

Draft Persistent Organic Pollutants (Amendment) Regulations 2024 laid before Parliament

The regulations amend the retained GB Persistent Organic Pollutants (POPs) Regulation (EU) 2019/1021, which prohibits the manufacturing, placing on the market or use of chemicals listed in Annex 1.

The amendments to the regulations include implementing certain changes from the Stockholm POPs Convention and updates reflecting scientific and technical progress.

Natural England publishes a State of Natural Capital Report for England 2024

On 9 October 2024, Natural England published a report examining the state of natural capital in England. The report uses evidence to evaluate the condition of ecosystems, the associated risks, and the implications for humanity, which relies on the benefits provided by nature.

In a government press release, Tony Juniper, chair of Natural England, spoke at an event to launch the report. He highlighted the critical connection between the health of our ecosystems and the well-being of society and the economy. Tony stated that "nature is the national wealth service" and emphasised that "you cannot grow the economy if we don’t grow nature".

To support this nature-focused approach, the report outlines actions and opportunities for ecosystem restoration. These include implementing nature-related disclosure requirements for companies and promoting nature-related investments.

ESMA publishes an updated sustainable finance implementation timeline

The European Securities and Markets Authority (ESMA) published an updated sustainable finance implementation timeline. This timeline outlines key regulatory developments in sustainable finance, such as the Corporate Sustainability Reporting Directive (CSRD).

The update highlights two areas:

• The dates by which non-financial and financial undertakings must disclose key performance indicators under the Taxonomy Regulation.
• The potential publication of content related to the European Commission's review of sustainability-related disclosures in the financial services sector (SFDR) in mid-2025.

The Council of the EU formally adopts a directive supporting air quality

On 14 October 2024, the Council of the European Union formally adopted a directive aimed at enhancing air quality standards across the EU. This directive supports the EU's net-zero objectives and prioritises the health of EU citizens by establishing air quality targets for 2030.

By 2030, the European Commission will review the air quality standards underpinning this directive to ensure they align with the latest scientific evidence.

UK government publishes a response to its carbon capture (decarbonisation) readiness

In 2023, the government published a consultation on its proposals to expand the carbon capture readiness (CCR) requirements. On 15 October 2024, the Department for Energy and Security and Net Zero (DESNZ), published the government response to this consultation. This response applies to England only, the Welsh government will issue a separate response detailing actions for Wales.

The proposal renames CCR as decarbonisation readiness (DR), ensuring that all new-build combustion power plants have a path to decarbonisation. The DR requirements will be moved from the planning consent process to the Environmental Permitting regime for applications submitted after 28 February 2026.

UK government publishes a response to its new Climate Change Agreements scheme

On 16 October 2024, the government responded to its 2023 consultation on a new climate change agreements (CCAs) scheme. CCAs are voluntary agreements that aim to increase energy efficiency, allowing sector associations to receive a reduced rate climate change levy.

The consultation proposed a new CCA scheme to begin 1 January 2025, setting three new target periods running from 2025 to 2030, with three certification periods running to March 2033. It also addressed which elements of the current scheme would be retained and provided further proposals for the future.

DESNZ responded to the consultation and concluded that the scheme would last for five years instead of six, beginning on 1 January 2026. It has confirmed that it will set targets to the end of 2030 and provide a climate change levy until March 2033. The response clarified that, while retaining some aspects of the old scheme, the new CCA scheme will be separate to encourage compliance with the climate targets.