🌍 Delegated Legislation Committee

• Introduction of the Final Year Rule: The draft Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2025 introduces a “final year rule” to the UK Emissions Trading Scheme (ETS). This rule adjusts how free allowances are calculated in the final year of a sub-installation’s operation, aiming to prevent over-allocation of allowances and promote fairness.

• Activity Level Reporting: Operators must prepare an activity level report for the final year of operation at a sub-installation. This report helps in recalculating the free allowances, ensuring they align with the level of activity during that year. Any over-allocations are recoverable under existing scheme rules.

• Exception to the Final Year Rule: There is an exception to the final year rule if the cessation of operations results in a significant reduction in emissions per unit of production for continued products at the installation. This encourages operators to decarbonize, allowing them to retain their free allocations if they meet the set requirements.

• Definition of Ceased Operation: The draft order updates the definition of when an installation or sub-installation has “ceased operation.” It now specifies that an operation has ceased when all regulated activities permanently stop at the installation, aiming to provide clearer guidelines for regulators and operators.

• Notification Requirements: Operators must notify regulators of any cessation of regulated activities at an installation by the end of the scheme year or within one month of cessation, whichever is later. They also need to confirm whether they plan to restart any regulated activities, ensuring transparency and effective management of the scheme.

• Regulatory Power to Determine Cessation: The draft order grants regulators the authority to issue a notice determining that an installation or sub-installation has ceased operation if they believe the operator does not intend to resume activities. This power aims to enhance consistency and fairness in the scheme’s administration.

• Stakeholder Engagement and Consultation: The changes introduced in the draft order followed extensive consultation with stakeholders. The UK and devolved governments conducted a consultation from December 2023 to March 2024 on altering free allocation methodology, which received broad support for the proposed changes regarding permanent cessations.

• Future Expansion and Long-term Commitment: The government plans to expand the UK ETS to include more sectors such as energy from waste, waste incineration, and maritime operators. There’s also an intention to extend the scheme until at least 2050, with a long-term pathway outlined in December 2023, showcasing a commitment to sustained decarbonization efforts.

• Opposition’s Concerns: The opposition expressed concerns about the potential economic impact of rising carbon prices, particularly highlighting the £147 per tonne by 2030 prediction. They worry about the effects on energy-intensive industries and the overall competitiveness of the UK economy.

• Government’s Position: The government emphasized that the UK ETS is integral to achieving net zero targets, securing energy, and fostering industrial growth. It refuted the opposition’s claims, stressing the necessity of the ETS for driving green investment and ensuring a just transition to a cleaner economy, despite potential upfront costs.

The disagreement in the session is moderate, as exemplified by the exchanges between the members, particularly between Nick Timothy (Conservative) and Kerry McCarthy (Parliamentary Under-Secretary of State for Energy Security and Net Zero). The level of disagreement is not at the highest level because the session did not devolve into personal attacks or heated arguments, but there was a clear difference in opinion and policy focus between the speakers, leading to disagreement on the approach to decarbonization and the impact of carbon pricing on the economy and industry.

Nick Timothy expressed skepticism and a critical view of the government’s decarbonization efforts, focusing on the potential negative economic impacts such as deindustrialization and rising energy costs. He highlighted the projected £147 per tonne carbon price by 2030 as an example of the government’s approach he opposes, stating that it could destroy industry and hinder economic growth. This stance was challenged by Kerry McCarthy who defended the UK ETS as a crucial part of the government’s industrial and environmental strategy, emphasizing its role in moving towards sustainable energy and protecting job security.

Key examples of disagreement include: - Nick Timothy’s critique of the high carbon price and its impact on energy-intensive industries, as shown in his remarks about the NESO report and the £147 per tonne of CO2 price: “The Government cannot have it both ways…Either Ministers must be honest and admit that the carbon price will increase to £147 per tonne of CO2 because of Government policy, or confess that the 2030 target for clean power will never be reached.” - Kerry McCarthy’s response countering the Opposition’s stance by stating: “it is a bit depressing to hear him outline the Opposition’s position…Net zero is part of our growth strategy, and energy security is very much at the heart of what we do.” She underscored the need for a strong UK ETS to maintain Britain’s position as a “clean energy superpower.”

The session ends with a vote where the draft order is agreed upon, suggesting that despite the disagreement displayed, there was enough consensus to move forward with the proposed changes to the Greenhouse Gas Emissions Trading Scheme.