Wednesday, 26 February 2014

UK to Prosecute Companies For Failing To Comply With The EU ETS (European Union Emissions Trading Scheme)

Written by Andrew Baker
Associate Director, Energy and Sustainability 

The EU ETS is the largest multi-country, multi-sector greenhouse gas emissions trading system in the world. It is central to the EU meeting its 20% emissions reduction target by 2020. Under the regulations, any operator that carries out a 'regulated activity' must have a permit. Phase 3 of the EU ETS came into effect on 1 January 2013 and runs until 31 December 2020.

Many non-industrial sites now qualify to participate in the EU ETS due to changes to the rules on qualification. The diversity of sites now qualifying for the scheme has meant that some companies are not aware that their sites have actually qualified, and as a result face penalties as the Environment Agency (EA) looks to make examples of non-compliant sites.

The expansion of the scheme to cover backup generation capacity has meant that sites including some data centres and large office buildings have qualified for Phase 3 of the scheme, despite annual emissions from these generators themselves being almost zero. Emissions are low from these generators as they only kick in to provide electricity during power cuts and during testing.

When combined with administrative costs, many participating sites are finding they are paying well over £10,000 per year to report emissions from backup generation which total less than 100 tonnes; the market cost of 100 tonnes of carbon permits under the EU ETS is less than £500. It is this disproportionality in costs of carbon vs compliance which has led many to question the interpretation of legislation in relation to backup generation, and many to hope a logical and pragmatic approach to enforcement would be adopted.

However, recent comments from the European Commission and enforcement agencies across various member states have indicated that they will not be heeding industry concerns. In the UK for example, the Environment Agency has confirmed its intention is to take action against sites failing to comply. The threat of fines of up to €100 per tonne of carbon not reported and the impact to reputation of non-compliance have meant most industry leaders are now taking steps to comply with the scheme, but the situation continues to raise questions about the legislation’s fitness for purpose.

Both landlords and occupiers must therefore act now to review the generating capacity at each of their sites against the qualification requirements for Phase 3. Where sites have qualified, they have until March 2014 to have registered their sites with the EU and until April to surrender carbon allowances.

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