In May 2019, we blogged about the UK government’s consultation on which direction UK carbon emissions policy should take post Brexit, with the preferred course being a UK-only ETS (emissions trading scheme) that is formally linked with the EU ETS. Please click here to read more.  The government is due to publish its full response to that consultation shortly and we will report on its response in due course. In the meantime, the government has had to publicly address the ongoing uncertainty for UK emitters created by the recent Brexit ‘flextension’, and take steps to implement Phase IV of the EU ETS into UK law.

Impact of Brexit flextension

After the UK Parliament passed the Benn Act to force the government to request a further extension to Article 50 of the Lisbon Treaty and avoid a ‘no-deal’ Brexit, on 28 October 2019 the EU agreed to a ‘flextension’ of Article 50 until 31 January 2020. This means that the UK will leave the EU sooner than that date if the revised withdrawal agreement negotiated by the government is ratified ahead of that time, failing which the UK would leave the EU on 31 January 2020 on no-deal terms.

The flextension has the effect of prolonging the UK’s participation in the EU ETS, potentially until after the end of the 2019 compliance year. The UK government has reminded UK operators that they must continue to comply with their EU ETS obligations for so long as the UK remains in the EU ETS. It has also confirmed that UK operators will be expected to account for their 2019 emissions during the normal compliance cycle.

In the meantime, the suspension of the UK’s right to issue or auction allowances to UK operators will continue to apply – only the ratification of a withdrawal agreement which further prolongs the UK’s participation in the EU ETS would trigger a lifting of these controls. The continued suspension creates further uncertainty for UK operators over how they will comply with their EU ETS compliance obligations for the 2019 compliance year. The government has sought to reassure UK participants that it intends to re-commence the issuing of allowances as soon as possible after the withdrawal agreement is ratified, but that it is also engaging with the European Commission regarding the implications of the suspension remaining in place in the short term.

The UK government has also confirmed that the carbon emissions tax, which was due to come into effect as a stopgap measure in a no-deal scenario, will not be commenced as was planned on 4 November 2019. The tax will now only come into effect on 4 February 2020, and only then if the UK leaves the EU on 31 January 2020 without a deal.

UK implementation of Phase IV of the EU ETS

While the UK government has not yet published its views on the future direction of UK carbon emissions policy, it has responded to one chapter of its consultation, which focused on the UK implementation of Phase IV of the EU ETS. The government brought forward its response to this chapter in order to meet the EU transposition deadline for Phase IV of 9 October 2019 – while ultimately the UK may not participate in Phase IV, depending on the outcome of the EU withdrawal process, the transposition deadline technically still applies to the UK until it leaves the EU.

The government’s response confirms that Phase IV will be implemented in the UK as required by the revised EU ETS directive and, in the few areas of national discretion, in line with all of its proposals in the consultation (which are mainly relevant to ‘small emitters’ and ‘ultra-small emitters’).