Environment Agency charges proposal for greenhouse gas emissions
Introduction
UK ETS puts a cost on carbon emissions. This encourages businesses to reduce the amount of greenhouse gases they emit to meet the UK’s statutory emissions reduction commitments. The scheme works on the 'cap and trade' principle. A cap is set on the total amount of certain greenhouse gases that operators can emit under the scheme. The cap is reduced over time so that total emissions fall.
Within the cap, companies receive or buy emission allowances. The limit on the total number of allowances available makes sure that they have a value.
Operators in UK ETS must surrender enough allowances annually to cover all their reportable emissions, otherwise large mandatory fines are imposed. If an operator reduces its emissions, it can keep the spare allowances to cover its future needs or sell them to another operator.
The UK ETS registry is an online system where allowances are held, traded, and surrendered as required by the scheme. It is also used by traders to hold and trade allowances as an activity unrelated to UK ETS compliance. We administer this system for the whole of the UK.
Under UK ETS in England, we are responsible for regulating:
- installations, which include electricity generation and the main energy-intensive industries, hospitals and small emitters (HSEs)
- commercial and non-commercial aircraft operators, resident or registered in England and outside the UK
Based on the Developing the UK Emissions Scheme: main response (3 July 2023), from 2026, we expect to regulate:
- waste installations - energy from waste and waste incineration installations
- the maritime sector
We propose to:
- revise the existing charging scheme for UK ETS installations, aviation and the registry
- incorporate the energy from waste and waste incineration sector into the UK ETS installation regime
- introduce charges for the UK ETS maritime sector as per UK ETS Authority consultation dated 28 November 2024 which set out who will regulate this sector under the UK ETS
- adjust existing charges for CORSIA as well as introducing separate charges for aeroplane operators regulated under both UK ETS and CORSIA
- adjust the charges to the national registry in line with the changes made for the UK ETS registry trading account
We do not intend to update the Clean Development Mechanism (CDM) project activity charges.
For further information on the scheme outlined in this consultation, please refer to our guidance pages for:
- the UK ETS scheme - participating in the UK ETS
- CORSIA - CORSIA: how to comply
- the UK ETS registry - UK Emissions Trading
Why we are proposing changes to charges
We have a duty to recover the costs associated with regulating and managing climate change schemes, such as UK ETS and CORSIA. We fund this work through charges.
This work includes:
- operating the relevant helpdesks
- opening ‘manage your UK Emissions Trading Scheme’ reporting (METS) accounts and assessing new permits and emission monitoring plans
- opening registry accounts and administering the registries (where applicable)
- maintaining permits, free allocations (where applicable), emission monitoring plans, and METS accounts
- monitoring compliance with the schemes and addressing non-compliance
- transfer, surrender or revocation of permit
The UK established the current UK ETS scheme in 2021 following the UK’s exit from the European Union. The Environment Agency (greenhouse gas emissions) charging scheme was introduced in April 2021. Charges were implemented based on our experience of previous schemes and our understanding of the regulatory work required to achieve full compliance with the new scheme.
We have reviewed the regulatory activity required and recalculated our charges for all activities, so the proposed changes reflect the true cost for the work we do to fulfil our statutory duties.
Why we are consulting
We have powers under legislation to recover the cost of our regulatory activities from people and organisations that require environmental regulation. This is to make sure these activities are not funded by the taxpayer.
We seek to recover the full cost of our services through charges. We have reviewed our charges to address changes in the cost of delivering our services and inflationary pressures, and to incorporate the cost of new services which will allow us to continue to effectively regulate emissions.
This document outlines our proposed charging structure for regulating UK ETS which also includes both the UK ETS and KP registries and CORSIA. We regulate the UK ETS and national registries for the whole of the UK. We have outlined the proposed new charging structure in a way to help you understand all the changes. We would like to know whether you agree with our proposals and would appreciate any suggestions you have on making them fairer in any way.
Our powers to charge
The Environment Agency has a statutory role under UK ETS and CORSIA and is the national administrator of the UK National registry and the UK Designated National Authority for the CDM. We are exercising our charging powers as set out in the Environment Agency (Greenhouse Gas Emissions) charging scheme 2021, made under:
- part 5 of the Greenhouse Gas Emissions Trading Scheme Order 2020
- part 4 of the Air Navigation (Carbon Offsetting and Reduction Scheme for International Aviation) Order (ANO) 2021
- sections 41 and 41A of the Environment Act 1995
The draft charging scheme attached to this consultation includes all proposed charges referred to in the consultation and is for illustrative purposes. We intend for the majority of charges to take effect from April 2025, but any charging scheme published by that date will include only those charges for which we have the legal power to charge at that date. It is likely that charges relating to waste installations and the maritime sector will be added to the charging scheme at a later date, once the charging powers for those sectors are in force.
Under managing public money guidance, we have a responsibility to recover the costs of our regulatory activity by setting charges at the appropriate level wherever applicable.
The principles we follow and what we aim to achieve
Our aim is to make the environment a better place for people and wildlife while facilitating sustainable development and supporting economic growth.
The proposals we have outlined in this consultation make sure that:
- people only pay for the regulatory service they receive
- we will recover our costs of regulation
- we will not need to use additional taxpayer funds to support our regulatory work
In this consultation our considerations include the need to make sure:
- our costs are reflected in our charges and align with HM Treasury rules in the guidance managing public money, (MPM)
- we have regard to the desirability of promoting economic growth (under section108 of the Deregulation Act 2015) when we carry out our regulatory activities
- our regulatory activities are transparent, accountable, proportionate, consistent, and targeted only at cases where action is needed (in line with the Legislative and Regulatory Reform Act 2006)
- we follow the Regulator's Code (as required under section 22 of the Legislative and Regulatory Reform Act 2006)
We have considered our charges against the need to deliver our regulatory duties. We know our charges can affect those we regulate so we have considered our proposals carefully. We are always interested to hear how you think we can regulate more fairly, while safeguarding the environment more effectively.
Our aim is to achieve a consistent and transparent approach in how we charge.
Inflationary increase to charge
We propose to continue to update our charges annually in line with inflation so we can maintain full cost recovery. All charges and fees under the Environment Agency (greenhouse gas emissions) charging scheme will be updated annually on 1 April. The Office for National Statistics measure of Consumer Price Index (CPI) inflation as of 30 September in the immediately preceding year will be used. Any increase to these charges will be equal to or less than this measure. Increases will be less if we believe our increased costs do not equate to the CPI measure. We would round the charge to the nearest pound.
We have chosen the CPI measure as this is widely recognised, understood, and accepted as a measure of cost inflation. It is used by:
- economic regulators to set regulated charges
- government to set taxes and benefits
- employers in wage bargaining
- private sector companies to set payment amounts in business contracts
We therefore believe it is the most appropriate measure of the increases in our own costs. If we believe our charges need to increase by more than the CPI, we will commence another review, seek HM Treasury approval, and carry out a public consultation.