Moved by
That the Grand Committee do consider the Greenhouse Gas Emissions
Trading Scheme (Amendment) Order 2022.
(Con)
My Lords, I beg to move that the draft Greenhouse Gas Emissions
Trading Scheme (Amendment) Order 2022, which was laid before the
House on 9 March 2022, be approved.
The UK Emissions Trading Scheme, or UK ETS, was established under
the Climate Change Act 2008 by the Greenhouse Gas Emissions
Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions
trading scheme to encourage cost-effective emissions reductions
which will contribute to the UK’s emissions reduction targets and
net-zero goal. This scheme replaced the UK’s participation in the
EU Emissions Trading Scheme, and the 2020 order applied EU ETS
rules on the monitoring, reporting and verification of emissions,
with modifications to ensure that they work for the UK ETS.
The 2020 order was subsequently amended by the Greenhouse Gas
Emissions Trading Scheme (Amendment) Order 2020 to include
provisions for the free allocation of emissions allowances and to
create the UK ETS registry. Regulations under the Finance Act
2020 established the rules for auctioning allowances and
mechanisms to support market stability. The UK ETS launched on 1
January 2021 and the first auction successfully completed on 19
May. The scheme has been running well since this launch, but
there is a need to continue to improve its operation.
Further amendments to the scheme were made by the Greenhouse Gas
Emissions Trading Scheme (Amendment) Order 2021, which was
subject to the negative procedure and came into force on 7
February 2022. In broad terms, the 2021 order made various
technical and operational amendments to the UK ETS across a
number of scheme aspects, including providing for installations
in the hospital and small emitter opt-out scheme to be able to
increase their emissions targets and for installations in both
opt-out schemes that return to the main scheme to benefit from
free allocation.
The purpose of this order is to amend the 2020 order to address
several residual operational issues identified in the development
of and legislation on the scheme, and to support the scheme’s
technical operation. This legislation also addresses an issue of
doubtful vires relating to the previous amendments raised by the
Joint Committee on Statutory Instruments.
This proposed order consists of various operational issues that
were identified by BEIS, the devolved Administrations and the
national scheme regulators during the establishment of the scheme
but were required to be legislated for via an affirmative
procedure. In particular, this order introduces a civil penalty
to enforce an existing obligation to return overallocated
allowances; creates an offence of intentionally obstructing the
scheme regulators exercising enforcement powers; makes it clear
that some enforcement powers previously introduced by the
negative procedure are valid; and provides that, when an
installation’s permit is surrendered or revoked, the notice given
to the operator will include a requirement to surrender any
deficit of allowances from previous scheme years.
The Government consulted on the policy in these regulations
between July and September 2021. The consultation generated seven
responses from a range of stakeholders. Responses were largely
considered clarification-based, none of which impacted on the
proposed policy changes. Alongside the consultation, the UK
Government and the devolved Administrations jointly sought the
advice of the Committee on Climate Change on the public
consultation. The Committee on Climate Change reviewed the
consultation on the proposed amendments and had no comments on
the content.
The amendments made to the surrender and revocation notice
provisions were not included in the public consultation. The
department took the view that the policy represented by these
amendments is within the scope of the consultation previously
carried out on the future of UK carbon pricing in 2019 and is
covered by the Government’s response to that consultation, which
was published in June 2020. The scheme regulators were consulted
and agreed with the proposed amendments. The Committee on Climate
Change was advised of the additional provisions and had no
comments.
The overall level of climate ambition in the UK ETS is unchanged
by the proposals. There is no overall impact on the monetised
costs and benefits to businesses. There is no change to the
supply of allowances or the expected emissions from participants.
There is also no expected change to the general administrative
burden for emitters. In terms of other impacts, these provisions
are also designed to address a number of specific circumstances
for regulators and the registry administrator, including options
to apply penalties specifically if operators or aircraft
operators fail to return allowances. Again, these are not
expected to apply generally, but might take effect in specific
circumstances.
In conclusion, this order will help to improve the effective
operation of the UK ETS. This in turn will help to ensure that
the scheme plays its part in reducing emissions. I commend the
draft order to the Committee.
(Lab Co-op)
My Lords, I do not intend to speak for long. This order is fairly
uncontroversial, so I do not want to detain this packed
Committee. The one thing that I want to mention is that the
Minister mentioned consultation and said that only seven people
responded. I have stood here many times and looked at
consultations, and it always strikes me how woefully few the
responses are. This order may not cover very much, but it seems
to me that we have to consult. The Minister need not come back
but, if only seven people respond, have we got the consultation
right? That is a general comment across a number of departments.
I shall not detain the Committee, because I do not have a huge
objection; the order is fairly uncontroversial. However, I
understand that this order amends a previous order, so the
question is why we did not get it right in the first place.
Perhaps the Minister can respond on that point in particular and
about consultation. I will leave it there.
(Con)
I thank the noble Lord for his kind comments and his contribution
to this debate. I take his points about the consultation. I
wondered why we had had so few responses, but it is a general
point about consultations.
The UK ETS was designed by the UK Government jointly with the
Scottish Government, the Welsh Government and the Northern
Ireland Executive. It came into force on 1 January 2021, only 15
months ago, replacing the UK’s participation in the EU scheme.
The UK Government and devolved Administrations are committed to
the use of carbon pricing as a key policy lever to ensure that
the UK reaches its ambitious climate targets, including net-zero
emissions by 2050, cost effectively. We will in due course also
consult on aligning the UK ETS cap with our ambitious net-zero
target—and I am sure the officials behind me will take note of
the consultation procedures for that. The UK ETS will promote
cost-effective decarbonisation, allowing businesses to cut carbon
where it is cheapest to do so. It will help mobilise the scale of
capital investment necessary to deploy clean energy technologies
and to capture new trade opportunities on the back of the energy
transition. Alongside our UK ETS, we are also supporting and
incentivising business to invest in key technologies such as
hydrogen and carbon capture, which, as the noble Lord will know,
is also supported by the Government.
8.30pm
The 10-point plan and the Spending Review contained key
commitments for a green industrial revolution. The UK Government
have committed to supporting the development of one carbon
capture and storage power plant by 2030 to reduce emissions from
gas-fired power stations; £1 billion for the CCS infrastructure
fund to help establish four CCUS clusters by
2030; and the £240 million net-zero hydrogen fund and a hydrogen
business model to deliver the ambition for 5 gigawatts of
low-carbon hydrogen capacity by 2030.
It is important that we continue to support the effective
delivery of the UK ETS by resolving operational and technical
issues identified as the scheme continues to run. We understand
the importance of stability for businesses covered by the scheme,
and in establishing the UK ETS, we prioritised ensuring a smooth
transition for operators from the EU ETS. The complexity and
scale of the UK ETS legislation means that, inevitably, minor
amendments are required following the initial setup of the scheme
to ensure it operates as smoothly as possible. Some of the
provisions in this legislation—for example, the penalties—require
the affirmative procedure, so it was necessary to legislate for
amendments through two SIs, an affirmative and a negative, to
ensure that amendments could be delivered in time. We engaged
with operators through a public consultation on this SI to ensure
that they were aware of proposed amendments and had the
opportunity to input well in advance of the legislation being
made. Guidance is available for UK ETS participants, and the UK
ETS authority will release further guidance as necessary to
advise operators and facilitate their compliance obligation with
the UK ETS.
In conclusion, the order will help to improve the effective
operation of the UK ETS by introducing a civil penalty to enforce
an existing obligation to return over-allocated allowances;
creating an offence of intentionally obstructing the scheme
regulators in exercising enforcement powers; making clear that
some enforcement powers previously introduced by the negative
procedure are valid; and providing that when an installation is
permanently surrendered or revoked, the notice given to the
operator will include a requirement to surrender any deficit of
allowances from previous scheme years. Improving the effective
operation of the UK ETS will ensure the scheme can play its part
in reducing emissions and achieving the UK’s ambitious climate
targets, including net-zero carbon emissions by 2050. I commend
the draft order to the Committee.
Motion agreed.
