EU ETS Participants – Are you prepared for a no deal Brexit?

• United Kingdom

• Industrials

31-01-2019

As participants in the EU ETS will be aware, back in 2017, as part of its planning for Brexit, the UK Government amended the Greenhouse Gas Emissions Trading Scheme Regulations 2012 to require UK operators to surrender allowances in respect of their 2018 emissions by 15 March 2019.

This was a necessary change to protect the integrity of the scheme itself from the consequences of Brexit. Many participants perhaps assumed that by the time the date came round, a deal would be in place with a resultant transition period meaning they would remain in EU ETS until the end of phase III (2020).

However, as we start to approach that date, with the threat of leaving without a deal still a real option, participants should review how they will approach a no deal Brexit.

Short of Allowances?

Any participants who have typically borrowed from future years’ free allowances to satisfy their previous years’ compliance obligations will be facing a potentially large and unexpected cost. If a participant fails to surrender the required number of allowances on 15 March 2019, as things stand they face action from the Environment Agency, including the imposition of a mandatory penalty of €100 per tonne in respect of any shortfall.

Within the last few days the Government has issued the Greenhouse Gas Emissions Trading Scheme (Amendment) (EU Exit) Regulations 2019 which makes clear obligations for the 2018 year, including the obligation to surrender allowances by 15 March 2019 the current enforcement regime and mandatory penalty remains in place.

Surplus Allowances?

If you are a participant who is currently holding surplus allowances, over and above what you will need to satisfy your 2018 compliance obligations you need to consider now how you intend to deal with that surplus.  In a no deal situation there will be no obligation to surrender allowances in the UK for future years. Whether you decide to sell, to transfer to a sister company in the EU 27, or potentially engage a third party trading company to assist you, it is imperative you take steps to prepare for the loss of registry access.

How we can help?

Our team of environmental and energy lawyers working with our EU team have extensive experience in relation to Brexit and EU ETS compliance and trading and are currently working with a number of clients on these challenges.