UK addresses post-Brexit challenges in environmental regulatory landscape | Latham & Watkins LLP

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The triggering of the CCM under the UK ETS and the ongoing consultations under the UK Reach point to speed bumps in the transition process.

On November 30, 2021, the UK Department for Business, Energy and Industrial Strategy (BEIS) updated its guidance on the UK Emissions Trading Scheme (UK ETS), the UK system based on the cap and trade aimed at reducing the country’s greenhouse gas (GHG) emissions. This update reported that the Cost Containment Mechanism (CCM) was triggered for December 2021, which is another indication of the widespread effects of rising energy prices.

Under the UK ETS, the UK government sets a cap on the maximum level of emissions in certain sectors of the UK economy and creates allowances for each unit of emissions up to the level of the cap. Some companies are then allocated free allowances, and the remaining allowances are auctioned and can then be traded by market participants. Emitters are required to surrender the amount of allowances equal to their total in-scope emissions, which means large emitters are required to purchase allowances.

In recent months, the well-documented gas supply issues in Europe have led some emitters in the UK to switch from gas production to coal production. This, among other factors, increased GHG emissions and stimulated demand for allowances under the UK ETS, which in turn drove up prices in the market-based system.

The CCM is a mechanism built into the UK ETS that is triggered if the price of allowances for three consecutive months is greater than twice the two-year moving price average (which at present is calculated by reference to both to the UK ETS and the EU ETS, given that the UK ETS has been operational for less than two years). The CCM allows the UK ETS Authority (the British, Scottish, Northern Irish and Welsh governments) to change the volume or distribution of allowances to be auctioned, in order to prevent prices from rising too high. This contrasts with the EU ETS, in which a similar mechanism applies if prices reach three (instead of two) times the two-year moving average for three consecutive months.

The triggering of the CCM gave the UK ETS Authority two weeks to determine whether to take action on the high price of allowances. On December 14, the UK’s ETS Authority issued a statement stating that it would take no further action at this time to curb rising prices, due to, among others, the “factors likely to have affected the prices of ETS allowances in the United Kingdom and the context of recent developments in the energy market”. This suggests that the UK ETS Authority views the recent high allowance price as temporary. However, the UK’s ETS Authority also stressed that it continues to monitor the price of allowances and “remains ready to take timely and proportionate action” should the CCM ever be triggered again.

In addition, on December 6, the head of the UK Department for Environment, Food and Rural Affairs (DEFRA) wrote to the UK Chemical Industries Association (CIA) about transitional requirements under UK REACH, the post-Brexit chemicals regime in the UK.

The letter, in response to comments received from the CIA in February 2021, says DEFRA will work with the chemical industry, the Health and Safety Executive (HSE) and the Environment Agency (EA) to explore a new model for UK transition REACH. registrations. The letter notes that the proposed model would reduce the need to replicate EU REACH datasets by placing greater emphasis on improving government and regulators’ understanding of chemical uses and exposures in context. of Great Britain.

The letter also offers consultation on a two-year extension of the deadline for companies to provide full registration data. DEFRA proposes a new deadline of October 27, 2025.

The extension of the deadline and the need for additional consultation under UK REACH, as well as the triggering of the CCM under the UK ETS, highlight some of the challenges the UK is facing in extracting its legal regime environmental laws of the EU.

Latham & Watkins will continue to monitor the issues discussed in this article, as well as other Brexit-related changes and challenges to the UK’s environmental regulatory landscape.

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