Are you prepared for the expansion of the UK Emissions Trading Scheme?

The proposed expansion of the UK Emissions Trading Scheme (UK ETS) to the energy from waste (EfW) sector is due to start next year. 

Businesses captured by the expansion need to prepare now for what represents the most significant regulatory intervention to the UK waste industry in a generation. This article examines the proposed expansion and provides guidance for how businesses can ensure they're best prepared.

The UK ETS is a market-based mechanism designed to incentivise the reduction of greenhouse gas emissions. It operates by setting a cap on the total amount of emissions allowed within the scheme. Energy-intensive industries are allocated free allowances that allow them to emit a certain quantity of greenhouse gases. If their emissions exceed their allowance, they must purchase additional allowances from other participants. This creates a financial incentive to reduce emissions.

The UK ETS is due to apply to the EfW sector in full from 1 January 2028. But there will be a two-year phase-in period from 2026-2028 during which time EfW facilities must monitor their CO2 emissions but will not have to surrender allowances in respect of these emissions. 

What are the issues you need to prepare for?

Unusually, we are unlikely to see draft legislation before it’s laid before Parliament but here are some issues that businesses need to think about:

• Environmental permitting - what environmental permits will need to be varied and have you started discussions with the Environment Agency to ensure a smooth transition into UK ETS?
• Operations - how are you managing your operations to comply with the new requirements? For example:
  • how will you ensure compliance with the new monitoring plan and emissions reporting requirements?
  • what arrangements have you in place to appoint an independent verifier and how will you address verifier findings?
• Fuel Supply Agreements – how will provisions covering change inlLaw, payment mechanism and change control procedure affect you?
• Project/operating contracts – how will revenue/costs share mechanisms affect you?
• Business structure – how will you administer the acquisition/trading/surrender of UK ETS allowances?

How can Ashfords help?

Ashfords has significant experience in advising clients on the application of environmental policy. This includes the ETS (EU and UK), in both its environmental and projects teams, and the team is currently supporting the Environmental Services Association on its response to the UK ETS Authority on the proposals to expand the UK ETS to the EfW sector. 

This experience also includes members of the team representing the Environment Agency in more than 150 appeals against civil penalties, in the First-tier Tribunal and the Upper Tribunal, therefore uniquely placing the team in a position to advise on regime compliance, steps to take in response to enforcement action, and prospects of success when making representations/bringing appeals. 

For further information or advice, please contact our business risk and regulation team