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Climate: Emissions Allowances

Tuesday 19 January 2021

What are the consequences of Brexit for the EU Emissions Trading System (EU ETS)?

As from 1 January 2021:

  • Installations located in the United Kingdom (UK) will cease to form part of the EU ETS, and hence, to be subject to compliance with the obligations under the EU ETS. However, the obligations under the compliance cycle corresponding to 2020 must be met within the first few months of 2021: the notification of emissions and surrender of emission allowances.
  • Flights by air operators made between the UK and any aerodrome located in States of the European Economic Area are not included in the reduced scope of application of the ETS Directive, and hence they do not need to notify the emissions corresponding to flights operated between the United Kingdom and aerodromes located in States of the European Economic Area. As regards air operators that the United Kingdom managed within the scope of the EU ETS, these will be reassigned to other EU States, and hence must notify their new State manager of the emissions corresponding to flights included within the scope of the EU ETS (exclusively flights with origin and destination in States of the European Economic Area). To this end, the European Commission will update the list of air operators under Commission Regulation EC No. 748/2009 of 5 August 2009 on the list of aircraft operators which performed an aviation activity listed in Annex I to Directive 2003/87/EC on 1 January 2006. Notwithstanding the foregoing, the obligations under the compliance cycle corresponding to 2020 must be complied with in the first few months of 2021: the notification of emissions and surrender of emission allowances.
  • Pursuant to Commission Implementing Regulation (EU) 2018/2067 of 19 December 2018 on the verification of data and on the accreditation of verifiers pursuant to Directive 2003/87/EC of the European Parliament and of the Council and to Regulation (EC) No. 765/2008 of the European Parliament and the Council of 9 July 2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products and repealing Regulation (EEC) No 339/93, the verification bodies must be established in the European Union and accredited by the national accreditation body of the Member State in which it is established.
  • Consequently, verification reports on emissions or on the level of activity performed by the verification bodies accredited by the national accreditation body of the UK (UKAS) will not be admitted.
  • The assignment and emission allowance auction of the EU ETS will no longer be held in the UK.
  • Pursuant to Article 19 of Commission Regulation (EU) No. 1031/2010 of 12 November 2010, on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances pursuant to Directive 2003/87/EC of the European Parliament and of the Council, access to the presentation of bids at EU ETS emission allowance auctions is not possible by natural or legal persons established in the United Kingdom, with the exception of those that are members or participants of a secondary market organised by the auction platform.
  • The United Kingdom will cease to administer trading accounts in the Union Registry, and hence accounts opened in the British area of the Union Registry will cease to be accessible to their holders, with the exception of those that must remain open to comply with the obligations established by the EU ETS, that is, those accounts of installation assets and air operators, which must satisfy the surrender of emission allowances for emissions produced in 2020, which will remain accessible until May 2020.
  • The holding of emission allowances and Kyoto units of these trading accounts can only be guaranteed through their transfer to accounts open in other national areas of the Union Registry or Registries pursuant to the Kyoto Protocol. Consequently, in the event that holders of accounts in the British area of the Union Registry wish to maintain ownership of emission allowances and participate in the EU ETS, they must have a trading account open in any other national area of a Member States of the Union Registry.


What will happen with existing emission allowances in accounts open in the Spanish area of the Union Registry?

By means of Commission Delegated Regulation (EU) 2019/4012 of 19 December 2018, Regulation No. 389/2013 is amended which established the Union Registry, to establish the market for emission allowances issued or auctioned in the UK as an additional safeguard measure as from 1 January 2018, which may not be used to comply with the EU ETS. This measure has not been applicable to date, and hence the emission allowances that are currently hosted in accounts in the Spanish area of the EU Registry will not be subject to any limitation beyond the rules already established in EU law.

Consequently, installations and air operators with compliance obligations under the EU ETS have no risks relating to the receipt of emission allowances that present limitations for the annual surrender to compensate their emissions.

What does the agreement state about trading emission allowances and similar instruments?

By virtue of the agreement on the future relationship reached between the EU and the UK on 24 December 2020:

  • Both the EU and the UK must have a carbon pricing instrument (an instrument that establishes a price for greenhouse gas emissions) functioning as from 1 January 2021 in the electricity generation, heat generation, industrial and aviation sectors. In the case of the EU, this instrument is the EU ETS. The UK has announced that it will introduce a system for the trading of national emission allowances.
  • The principle of non-retrogression in protection levels will be respected: modifications to these instruments that reduce environmental ambition may not be introduced.
  • Each party will maintain its carbon pricing system as an efficient tool for fighting climate change, and at any event the parties will maintain the principle of non-retrogression in protection levels.
  • The EU and the UK will collaborate in the matter of carbon pricing, and will consider tying in their respective systems in such a way as to preserve environmental integrity, while trying to enhance their effectiveness.

Non official translation

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