Government proposes changes to UK application of the EU ETS and new discretionary penalties

The Government said it would "make it clear that the regulator" has discretion to" increase or decrease" a penalty, or even waive it completely where, for example, non-compliance with the EU ETS and the UK regulatory regime is "inadvertent". 

The Government has set out proposed amendments to the UK's greenhouse gas emissions trading scheme and national emissions inventory regulations (30-page / 608KB PDF) which would provide regulators, including the Environment Agency in England and the Scottish Environment Protection Agency in Scotland, more discretion over the penalties they can impose  under the regime. 

Currently UK regulators of EU ETS, which also include Natural Resources Wales, the Chief Inspector for Northern Ireland, and the Department of Energy and Climate Change (DECC) for the offshore industry, can serve fixed penalties only against companies that breach the regulations. 

However, DECC has now proposed amendments to those rules that would enable the level of penalties to be set at "the regulator's discretion". 

"Many participants in the Greenhouse Gas Emissions Trading Scheme have found themselves in a difficult position where they have surrendered insufficient allowances as a result of human error, without any real culpability," said environmental law expert Gordon McCreath of Pinsent Masons, the law firm behind Out-Law.com. "Even where they have made the shortcoming good by submitting the necessary allowances, including with interest, they have found themselves subject to fixed civil penalties, which really do not reflect the seriousness of the breach." 

"These new proposals aim to complete the process of remedying that by allowing more flexibility on penalties across the board and so are to be welcomed. As ever, more discretion for regulators does carry a concern of inconsistency of decisions, but we can take some comfort from the appeal mechanism available; also we might expect guidance from the regulators on how they will exercise that discretion in practice," McCreath added. 

The proposals also set out the Government's intention to implement the EU's 2013 Registries Regulation and to replace the National Emissions Inventory’s system of criminal sanctions with a civil penalty scheme, at the same time removing the associated power of entry. 

The EU ETS was established in 2005 and was the first major emissions trading scheme in the world. Phase 3 began on 1 January 2013 and runs until 2020. 

Under the scheme there is a cap on greenhouse gas (GHG) emissions from prescribed energy intensive installations, such as factories, power stations and others with a net heat excess of 20MW per year. Installations must purchase GHG emissions allowances, called European Union Allowances (EUAs), which represent the right to emit or discharge a specific volume of emissions in line with national allocation plans. Operators of installations must hold EUAs equal to, or more than, total emissions at the end of the EU ETS year and those with excess allowances can 'bank' them or trade with those who need to buy more allowances to comply with emissions limits.