In July 20211, the UK ETS Authority (UK Government, Scottish Government, Welsh Government, and the Department of Agriculture, Environment, and Rural Affairs (DAERA)) consulted on a number of proposed amendments to the Greenhouse Gas Emissions Trading Scheme Order 2020 (“the 2020 Order”). We proposed further amendments to the 2020 Order, by introduction of two separate statutory instruments, published in draft. We received 7 responses, largely not impacting the policy intent of the proposed draft provisions. As such, we will be proceeding with the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021 and the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2021 (now referred to as the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022) as amendments to the 2020 Order. 1

The UK ETS was established in law in 2020, with the 2020 Order introducing the majority of legal provisions under the powers granted by the Climate Change Act 2008 (CCA 2008). Amendments to the 2020 Order were subsequently made at the end of 2020 and provided for, amongst other things, free allocation of allowances and the establishment of an allowance The July 2021 consultation proposed further amendments to the 2020 Order, by the introduction of two separate statutory • the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021, and • the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022. These amendments are considered necessary to address a number of technical and operational issues identified during the development and subsequent amendment of the 2020 This document details the responses received, and the UK ETS Authority decisions on the Proposed amending the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021 The consultation set out our proposed amending order, subject to the negative resolution procedure for secondary legislation, which will introduce amendments to the 2020 Order. In broad terms, the amending Order will include technical amendments that improve the operation of the UK ETS, including aspects of monitoring and reporting. Policy Area Responses received UK ETS Authority responses T he capacity increase provision is designed for operators to voluntarily apply for an increase in their emissions targets. Reductions in capacity within the allocation period (2021-2025) will not otherwise affect the installation’s target, which will be revised before the start of the next allocation period in 2026. In the case that an operator applies for a revision of their emissions target, both capacity increases and decreases over the relevant period will be taken into account, so that the new target only reflects the net increase in capacity. There are no other requirements on hospital or small emitters to notify the regulator of changes in capacity. While the original emissions targets are based on historical emissions, the change based on capacity increase takes into account capacity utilisation and the relevant product benchmark to reflect how much the change in capacity affects emissions. It is then adjusted for the remaining years of the allocation Do you have any comments on the proposed Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021, or on the specific proposals within? Policy Area Responses received UK ETS Authority responses Recommendation has been taken into account and has led to amending the provision. The re-drafted provision will now explicitly provide for the split of installations into sub-installations in accordance with the Free Allocation Regulation. The net change in capacity of each sub-installation is calculated without the need to provide evidence of or consider the capacity utilisation factor of any capacity decrease before being combined to give the net change in capacity of the installation overall. The new “combined capacity utilisation factor” takes account of the capacity utilisation of capacity increases only. All operators are required to develop and maintain a Monitoring Plan to set out how they will monitor emissions. Additionally, those eligible for free allocation of allowances are required to develop and maintain a Monitoring Methodology Plan to monitor activity levels. As the plans have different functions, we shall continue to request the two plans as separate documents. However, moving forward, we will consider how to streamline reporting Proposed amending the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022 The consultation set out our proposed amending order, subject to the affirmative resolution procedure for secondary legislation, which will introduce amendments to the 2020 Order. In broad terms, the amending Order will regulators to impose civil penalties for operators that fail to return allowances to which they are not entitled; the UK ETS authority to seize and

sell allowances to cover any unpaid civil penalties; to clarify the regulators’ powers of enforcement; to make it an offence to intentionally obstruct a regulator or an authorised person in exercising powers of entry. Policy area Responses received UK ETS Authority responses retain the Sterling equivalent The 2012 Regulations have now been Excess emissions penalties are described within article 52 of the 2020 The proposed amendment would not emissions penalty”. The power to seize and sell allowances may be exercised by the UK ETS Authority when any civil penalty, including the Excess Emissions Penalty, is not paid by the date specified in the penalty Summary of responses out of scope for this consultation We have received several responses which are outside the scope of this consultation. Broadly, • propose a reduction in Aviation Passenger Duty tax to help the industry recover from the COVID -19 crisis and assist it financially once the additional cost of carbon credits is • require the regulator to ensure that aircraft operators’ CO2 emissions, NOx emissions, and estimated non CO2 impacts are recorded in the Registry; • address important market issues in the context of the UK ETS relating pre-trade and post-trade transparency, transaction reporting, and position reporting. These responses will be taken into consideration when developing future wider policy. Do you have any comments on the proposed Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2021, or on the specific proposals therein?
Further amendments to be included in the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021 Since the publication of the consultation, additional proposed amendments have arisen and will be included into the planned Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021. These further proposed amendments have been subject to further targeted consultations Brief description Consultation Responses the 2020 Order, which modifies article 54 of the Monitoring and • Clarify that it is only possible factor to a biofuel if it meets the sustainability criteria in the mixed fuel, including the use of The 2020 Order is not clear on purpose of these provisions is to provide for an interim policy Sustainability Criteria with a highlighted that the Authority 2 Commission Implementing Regulation (EU) 2018/2066

Brief description Consultation Responses the 2020 Order to enable us “historical aviation activity” set out in article 34J(1)(c)(ii) of the 2020 Order and recalculate the • Amend the aviation allocation Further amendment to be included in the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022 Since the publication of the consultation, it has been decided to include an additional proposed amendment into the planned Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022. The additional provision makes minor amendments to a process in place and is

within the scope of the policy previously consulted on policies in the Future of UK Carbon Pricing Consultation and Government Response published in 2019. Surrender and revocation notices Provision will require that a surrender or revocation notice given to the operator of an installation whose permit is surrendered or revoked must include a requirement on the operator to surrender allowances to cover any deficit from a previous scheme year (in a case where the operator did not surrender sufficient allowances to cover reportable emissions in a previous scheme year), in addition to the requirement to surrender allowances to cover reportable emissions in the year in which the notice takes effect. This provision applies to greenhouse gas emissions permit holders only. Further changes to the proposed Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021 and Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022 After further consideration, we will not be proceeding with the inclusion of the following proposed policies outlined in the consultation. Policy area and brief description Brief description Aviation – assistance of Civil Aviation T he purpose of this amendment is to enable the UK ETS authority, national authorities and regulators to seek assistance and advice from the Civil Aviation Authority, and for the CAA to subsequently request remittance of expenses incurred in such activity from the Powers to recover unpaid penalties – seizing Provision to afford the UK ETS authority the power to seize and sell allowances to cover any unpaid civil penalties owed by the operator or aircraft operator. This is to

support the recovery of unpaid penalties from operators and aircraft operators. The published draft Orders will be appropriately revised to reflect the further amendments and considerations from stakeholders’ as described above. The Greenhouse Gas Emissions Trading Scheme Below are the policy issues we will be resolving in the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021. Policy Issue/Area Brief description The re-drafted provision will now explicitly provide for the split of installations into sub-installations in accordance with the Free Allocation Regulation (Commission Delegated Regulation (EU) 2019/331). The net change in capacity of each sub-installation is calculated without the need to provide evidence of or consider the capacity utilisation factor of any capacity decrease before being combined to give the net change in capacity of the installation overall. The new “combined capacity utilisation factor” takes account of the capacity utilisation of capacity increases only. To introduce a limitation of liability for the UK ETS authority (UKETSA) and the registry administrator when undertaking statutory functions under Schedule 5A to the Greenhouse Gas Emissions The exclusion from liability does not apply to acts in “bad faith”, which is intended to cover acts that are fraudulent or malicious, or to claims under the Human Rights Act 1998. We would welcome consultees’ views on the scope and the drafting of the proposed Registry accounts Provision to enable holders of accounts in the registry to apply for To require the regulator to ensure that operators’ and aircraft operators’ emissions are recorded in the Registry following submission to the regulator at the end of the reporting year. Policy Issue/Area Brief description The purpose of this amendment is to outline the process by which operators of HSEs and USEs, who are required to rejoin the main scheme if emission thresholds are breached, may be allocated free allowances, if eligible, when rejoining the main scheme. If there is an error in the free allocation of allowances, the registry needs to be able to reverse these actions. This provision allows for such errors to be remedied by the registry administrator. This amendment is to mirror changes made to Annexes II and IV of the EU ETS Monitoring and Reporting Regulation 2018 (MRR) in 2020 – specifically, combining sections 4 and 5 of Annex II into one section and amending the references in Annex IV to reflect that change. The UK ETS Order currently applies the MRR to the UK ETS with modifications that do not include the 2020 changes. Implementing the 2020 changes will reduce the administrative burden for operators in respect of MRV for process emissions. Provision for the regulator to reject an installation’s monitoring plan and for the operator of the installation to appeal; for the regulator to refuse to issue a permit unless a monitoring plan has been approved or the monitoring plan complies with the Monitoring and Reporting Regulation 2018; and to require that any new or varied Monitoring Plans and Monitoring Methodology Plans (MMPs) submitted with a permit transfer application must be approved by the regulator under the Monitoring and Reporting Regulation (MRR) and Free Allocation Regulation (FAR) as applicable before the application is granted.
This is to ensure the appropriate level of assurance that monitoring plans and monitoring methodology plans A provision to allow the regulator, in the case of a partial permit transfer request, to effect such a transfer by means of a variation to an existing permit held by the new operator, where the new operator already has a permit for one or more installation(s) on the same site. This is to avoid the unnecessary issuance of new permits where a variation to an existing permit is a more efficient alternative. Policy Issue/Area Brief description Modification of the MRR as it applies to installations in the hospital or small emitter opt-out scheme so that Article 69(4) of the MRR (obligation to submit improvement reports) does not apply to such installations. This is to avoid unnecessary administrative burdens for operators in the opt-out scheme. Minor modifications of the MRR as it applies to the UK ETS including changing references to Directive 2003/87/EC to UK legislation and replacing references to Commission guidance in Article 43 and Annex 4 to guidance of the UK ETS authority. The purpose of this amendment is to enable a person who has not yet become an aircraft operator to be able to apply for an emissions monitoring plan, in addition to extant Aircraft Operators (AO). Compliance with the EMP would not begin until the person becomes an AO, so this provision would not result in the person being under any new obligations or at risk of penalties by proactively applying for The purpose of this amendment is to make it clear that the process for correcting errors in allocation tables applies even if the error has resulted in a failure to include an installation or an aircraft operator Amending penalties Amendment to Article 57 (Hospitals and Small Emitters failure to notify when ceasing to meet criteria) penalty • Amending penalty calculation for hospital or small emitters that fail to notify the regulator when ceasing to meet criteria for being excluded for the main emissions trading scheme by adding in consideration of free allocation entitlement. Amendment to Article 60 penalty calculation (USE failure to notify where reportable emissions exceed maximum amount): Amending penalty calculations for ultra small emitters failing to notify when reportable emissions exceed criteria for being excluded for the main emissions trading scheme by adding in consideration of free

Policy Issue/Area Brief description Aviation Biofuels The proposals will amend a Schedule 4, paragraph 27 of the 2020 Order, which modifies article 54 of the Monitoring and Reporting Regulation 2018 in its application to the UK ETS • Clarify that it is only possible to apply a zero emissions factor to a biofuel if it meets the sustainability criteria in the Renewable Transport Fuel Obligations (RTFO) Order 2007 • Address the treatment of mixed fuels and set out the options for determining the percentage of biofuel in a mixed fuel, including the use of purchase records. The 2020 Order is not clear on how biofuel use can be claimed under the UK ETS and therefore, the intended purpose of these provisions is to provide for an interim policy measure whilst development of the wider policy on use of sustainable aviation fuels The proposals will amend article 34J and article 34N of the 2020 • Amend the definition of “historical aviation activity” set out in article 34J(1)(c)(ii) of the 2020 Order and recalculate the UK ETS free allocation entitlement for applicants whose full-scope TKM data increased by an average of more than 18% annually between 2010 and 2014 (qualifying as fast growers under the EU ETS). The Greenhouse Gas Emissions Trading Scheme Below are the policy issues we will be resolving in the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022. Policy Issue/Area Brief description Penalties Targeted penalty for failure to return • Article 34V of the GGETS Order 2020 provides for the regulator to give a notice to an operator or aircraft operator requiring the return of allowances to which the person was not entitled. An enforcement notice under article 44 is currently the only enforcement response if the notice to return is not complied with. It is therefore proposed that, where operators or aircraft operators fail to return allowances, the regulator should be able to impose a civil penalty to incentivise their compliance with a notice to return allowances. To put beyond doubt that the registry administrator has the power to give enforcement notices and information notices under articles 44 and 75 of the GGETS Order Powers of entry This provision will make it an offence for a person to intentionally obstruct the regulator or an authorised person in the exercise of enforcement powers under article 40 of the GGETS Order 2020. Powers to inspect Provision to make it clear that the power to inspect premises under article 39 of the GGETS Order 2020 to ensure compliance may be exercised by an “authorised person” as well as the regulator. Provision will require that a surrender or revocation notice given to the operator of an installation whose permit is surrendered or revoked must include a requirement on the operator to surrender allowances to cover any deficit from a previous scheme year (in a case where the operator did not surrender sufficient allowances to cover reportable emissions in a previous scheme year), in addition to the requirement to surrender

Policy Issue/Area Brief description allowances to cover reportable emissions in the year in which the notice takes effect. This provision applies to greenhouse gas emissions permit holders only. Once redrafted, we will amend the 2020 Order by proceeding to make the two proposed SIs, subject to the approval of all four The Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2021 and, The Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2022). Both SIs are expected to be in force no later than 31 March 2022.

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