The triggering of the CCM under the UK ETS and ongoing consultations under UK Reach signal speedbumps in the transition process.

By Paul A. Davies, Michael D. Green, and James Bee

On 30 November 2021, the UK government’s Department of Business, Energy and Industrial Strategy (BEIS) updated its guidance on the UK Emissions Trading Scheme (UK ETS), the UK’s cap-and-trade-based system to reduce the country’s greenhouse gas (GHG) emissions. This update signalled that the cost containment mechanism (CCM) was triggered for December 2021, which is further indicative of the widespread impacts of increasing energy prices.

Under the UK ETS, the UK government sets a cap on the maximum level of emissions across certain sectors of the UK economy and creates allowances for each unit of emission up to the level of the cap. Certain companies are then allocated free allowances, and remaining allowances are auctioned off and can be subsequently traded by market participants. Emitters are required to surrender the amount of allowances equal to their total in scope emissions, meaning that heavy emitters are required to purchase allowances.

In the last few months, the well-documented issues relating to gas supply in Europe have led to certain emitters in the UK switching from gas generation to coal generation. This, among other factors, has increased GHG emissions and boosted demand for allowances under the UK ETS, which, in turn, has resulted in higher prices in the market-based system.

The public consultation on adjusting the GHG emission allowance auction process for 2021-2030 is open for comment until August 6.

By Joern Kassow and Alexander Wilhelm

In order to deepen cooperation in the energy sector and to build up a stronger Energy Union, the European Parliament and the Council revised Directive 2003/87/EC (ETS Directive) in March 2018 to implement the ambitious targets of the 2030 EU Climate and Energy Framework. The European Commission (EC) therefore plans to adjust the rules on auctioning greenhouse gas (GHG) emission allowances to maintain pace with these recent EU Emissions Trading System (EU ETS) developments. Prior to adopting a Delegated Regulation to amend Regulation (EU) No 1031/2010 (Auctioning Regulation), the EC is inviting comments on the draft until August 6, 2019.

The EC is seeking feedback on its roadmap for the next EU Emissions Trading System revision.

By Paul A. Davies, Lars Kjølbye, Elisabetta Righini, and Guendalina Catti De Gasperi

The European Commission (EC) has launched an initiative for the revision of EU-wide rules for the free allocation of emission allowances under the EU Emissions Trading System (EU ETS). Under the initiative released on March 20, 2018, the new rules would be applicable in the fourth trading period of the EU ETS (2021-2030). In particular, the initiative will:

As a first step, the EC has published a roadmap (Roadmap) describing the scope, purpose, and timing of the revision, and the main features of its consultation strategy. Stakeholders can provide their feedback on the Roadmap until April 17, 2018.