EU GHG Emissions Trading Scheme/CRC Energy Efficiency Scheme

• Council Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading with the community

The EU Emissions Trading Scheme (EU ETS) Directive was published in October 2003 and came into effect in January 2005. The Directive applies (amongst others) to installations with combustion facilities with a combined rated thermal input of >20 MW (th). This is a statutory scheme for those relevant installations. The aim of the Directive is to achieve reductions in GHG emissions as outlined by the Kyoto Protocol.

The EU Emissions Trading Directive covers the six greenhouse gasses that are included in the Kyoto Protocol. However to date only CO2 emissions are covered. The scheme may be expanded in future phases to the other greenhouse gases.

• The Greenhouse Gas Emissions Trading Scheme Regulations 2005 as amended
• UK Phase 2 National Allocation Plan 2008-2012

The Greenhouse Gas Emissions Trading Scheme 2005 (the 2005 Regulations) as amended provide a framework for a greenhouse gas emissions trading scheme and implement Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading.

• CRC Energy Efficiency Scheme Order 2010

The CRC Energy Efficiency Scheme (CRC) (formerly the Carbon Reduction Commitment) is a mandatory scheme designed to promote energy efficiency and reduce carbon emissions in the UK (see Performance Standards for more information).

A consultation on the revision of the CRC Order 2010 is currently ongoing (see Pending Legislation).

• Climate Change Act 2008

The Act sets up a framework for the UK to achieve its long-term goals of reducing greenhouse gas emissions and to ensure steps are taken towards adapting to the impact of climate change. The Act enables a number of elements (see Pending Legislation).

• The Carbon Accounting Regulations 2009

These regulations introduce a carbon accounting system which will be used to monitor compliance with the targets for reducing greenhouse gas emissions introduced by the Climate Change Act 2008. The system is compatible with the existing EU ETS trading system.

• The Greenhouse Gas Emissions Data and National Implementation Regulations 2009

The Regulations, which apply in the United Kingdom, give effect to two parts of the EU ETS Directive. Firstly, the Regulations enable specified greenhouse gas emissions data to be collected. Secondly, the Regulations enable production and other data to be collected for the purpose of enabling the United Kingdom, as it is required to do so by the Directive, to publish and submit to the European Commission its national implementation measures for the third phase of the greenhouse gas emission allowance trading scheme which commences on 1st January 2013. Also see EU ETS Phase III Allocations

• Regulation (EU) No 1031/2010 of 12 November 2010 on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances

This Regulation will apply to the auctioning of allowances covered by Chapter II and Chapter III of Directive 2003/87/EC from, respectively, 1 January 2012 onwards and 1 January 2013 onwards. It should also apply to the auctioning of any allowances covered by Chapter III of Directive 2003/87/EC prior to the start of the period from 2013, if necessary to ensure an orderly functioning of the carbon and electricity markets.

• DECC Guidance on the Greenhouse Gas Emissions Trading Scheme Regulations
• Defra and DECC Guidance on how to measure and report your greenhouse gas emissions (pdf file)
• Defra, in partnership with Department of Energy and Climate Change (DECC), has published the 2010 update to the Greenhouse Gas (GHG) Conversion Factors for Company Reporting. The dataset is now available on our the Defra conversions page.

Further guidance on the EU Emissions Trading Scheme for offshore installations are available on the following web sites:

• DEFRA website
• DECC website

EU ETS Phase III Allocations Guidance

• DECC Guidance on Phase III Data Collection Feb 2010 (MS Word)
• DECC Guidance on Phase III Collection DECC OED Spreadsheet (MS Excel)
• Environment Agency Website for additional guidance
• Environment Agency Guidance Notes and Spreadsheets
• To obtain copies of the EA spreadsheet and guidance notes, please contact the DECC OED Environmental Management Team.
• See EU ETS Phase III Allocations below

CRC Energy Efficiency Order Guidance

• DECC CRC Guidance
• Environment Agency index of CRC Guidance
• Environment Agency - Does my organisation qualify? (PDF)
• Environment Agency - CRC Registry and Guidance
• Environment Agency - CRC Reporting Guidance

Any installation with combustion plant that on its own or in aggregate with any other combustion plant has a rated thermal input exceeding 20 MW (th) is required to be registered under the EU ETS.

There are two parts to the EU ETS

a) The requirement to be registered under the scheme, and the receipt of a permit under the EU ETS;

b) Application for an allowance from the National Allocation Plan.

Any new relevant installation that is not permitted is classed as a new entrant and must apply for allowance under the New Entrants Reserve (NER). However, the NER has a limited capacity and only certain applications will be eligible. The following types of offshore projects (onshore installations oil and gas E&P operations are not eligible) are considered to be eligible new entrants:

• New installations and new combustion capacity at existing installations;
• Tie-backs and modifications that meet the following criteria:
  • Will result in a quantified enhanced recovery of reserves;
  • Will require a variation of the relevant permit; and
  • Will result in a quantified increased additional power demand that will generate additional emissions from the existing combustion plant.

The NER is on a strictly first come first served basis and a queuing system will apply. Part of the NER has been ring-fenced for Combined Heat Power (CHP) installations. Facilities not receiving an allocation under the EU ETS will be required to purchase allowances through the Trading Scheme.

The UK submitted its Final National Allocation Plan for Phase II of the EU ETS to the Commission in August 2006 and the plan accepted in November 2006. The approved plan and the Final Allocation Decision which includes the list of installation level allocations for Phase II was published on 16 March 2007 and is available on the DEFRA website.

Application forms for Allocations under EU ETS Phase III are now available. See EU ETS Phase III Allocations below.

Also see Performance Standards for any requirements under the CRC Energy Efficiency Scheme Order 2010

Application for a GHG Permit under the EU ETS should be through the application form available on DECC website. Guidance notes are also available here.

Information that is required to be included, includes:

• Installation/facility details (including any tie-backs) and description of activities covered by the permit (i.e. combustion plant with an aggregated thermal rating of > 20 MW (th));
• Details of fuels used;
• Existing PPC permit details;
• Outline of planned monitoring and reporting measures, confirming arrangements that will be implemented; and
• Non-technical summary of installation/facility details.

In addition, an application for an allocation from the New Entrants Reserve (NER) will also be required. Application is through DECC NER Application Form available on DECC website. Guidance on completion of the NER and calculation of allowances is also available on DECC website.

Installations that have entered under Phase I will already have new allocations issued under Phase II.

Data submitted as part of the application for allocation under the NER must be externally verified as part of the application process. This will require production of a Design Report. The Design Report must include, at a minimum:

• The inputs that you have applied to the NER application and benchmarking spreadsheets;
• The allocation that you have calculated from your inputs to the spreadsheets; and
• The best practicable level of assurance that you can provide that these data represent accurate estimates for your installation.

The Design Report will need to be verified by a UKAS accredited verifier, who will produce a Verification Report for submission to DECC. Guidance on production of the Design Report and verification is available on DECC website and further guidance is also available on the DEFRA website. Once the Design Report and Verification Report are received by DECC, the application will be recognised as “duly made”, however final allocations under the NAP will not be issued until DECC have checked and finally approved the Design Report and Verification Report.

The EU ETS permit also requires submission of a Monitoring and Reporting (M&R) Plan (see Monitoring). Applicants must also open an EU ETS UK Registry account to enable trading (see Performance Standards).

Completed EU ETS and NER applications will be submitted electronically to both DECC Environmental Management Team and DEFRA/Environment Agency by email. Under exceptional circumstances it may be necessary to separately forward hard copies of any supporting documents. Two copies of each document should be submitted. Applications should be emailed to the following email addresses.

DEFRA/EA: etapps@environment-agency.gov.uk

DECC: emt@decc.gsi.gov.uk

Note - Department of Energy and Climate Change (DECC) has been formed through the merger of BERR energy divisions (including Oil and Gas) with divisions of DEFRA involved with climate change (including EU ETS activities). It is not yet clear how new contact arrangements will be organised under the new government department.

EU ETS registration and allocation must be in place before operations commence.

Verification opinions on applications for new activities must be submitted within 30 working days of receipt of the EU ETS Permit in order to be eligible for any set aside allowance (if installation is eligible to receive an allowance).

The UK submitted its Final National Allocation Plan for Phase II of the EU ETS to the Commission in August 2006 and the plan accepted in November 2006. The approved plan and the Final Allocation Decision which includes the list of installation level allocations for Phase II was published on 16 March 2007 and is available on the DEFRA website.

The Environment Agency has launched the application round for Allocations under EU ETS Phase III. The EA is collating the data for the whole of the UK and for all industry sectors on behalf of DECC, National Climate Change (NCC). The EA has issued an data collection spreadsheet and an accompanying guidance note.

Operators are required to provide data for all installations currently operating in the EU ETS, and for all installations or activities that will be captured by the changes being brought about in Phase III of the EU ETS (which will begin on 1 January 2013). Operators must complete the relevant sections fo the spreadsheet and return it to the EA, together with any supporting documents referred to in the Additional Information spreadsheet. Oil and gas operators must also copy the return and supporting documents to the DECC OED Environmental Management Team to enable them to analyse the data and provide advice to the EA and NCC.

In the case of installations that are not eligible for free allocation, you must still complete relvant sections of the spreadsheet so that the EA can confirm that the installations are not eligible. However this requirement will not be relevant for the offshore oil and gas sector.

The Regulations require operators to supply production and other relevant data as follows

• Unverified data must be submitted to the EA (and copied to DECC) by 30 April 2010
• Verified data must be submitted to the EA (and copied to DECC) by 30 June 2010

Operators should be aware that failure to submit the required data by either of these deadlines will leave you liable for civil penalty.

To obtain copies of the EA spreadsheet and guidance notes, please contact the DECC OED Environmental Management Team or they can be obtained from the EA website (see below).

There are a number of issues specific to the offshore oil and gas industry relating to the completion of the EA spreadsheet and the interpretation/verification of data and DECC OED has thereofre prepared a supplementary guidance note and a separate spreadsheet to collect some additional data.

These DECC OED spreadsheet should be returned to DECC only along with the EA spreadsheet by the above dates. Do not send a copy of the DECC OED spreadsheet to the EA, as they have no locus with respect to the additional data collection exercise.

If you have any queries relating to the EA spreadsheet, or queries relating to the accompanying EA guidance that are not addressed in the DECC (OED) supplementary guidance please contact EUETSPhase3help@environment-agency.co.uk

• DECC Guidance on Phase III Data Collection Feb 2010 (MS Word)
• DECC Guidance on Phase III Collection DECC OED Spreadsheet (MS Excel)
• Environment Agency Website for additional guidance notes
• Environment Agency Guidance Notes and Spreadsheets

Also see Snippets for further information on allocations, new entrants and closures under EU ETS Phase III.

The EU ETS Permit includes conditions specifying the activities it covers, the emissions of GHG covered and the permitted emission points. The conditions will also place an obligation on the operator to submit a detailed monitoring and reporting plan confirming the monitoring and reporting arrangements that will be implemented (see Monitoring).

Permit conditions also include details of reporting requirements. See ETS Standard Permit and Conditions (pdf file).

Each operator will have an account on the UK Registry that enables them to manage their allowances, including transfer and surrender of allowances.

The EU ETS works on a "Cap and Trade" basis, with emission caps being set for all installations covered by the scheme. Each installation will then be allocated trading allowances based on the National Allocation Plan (NAP) on the 28th February each year. In subsequent years, permitted installations must surrender a number of allocations equal to their emissions from the previous year. Operators must also have their annual emissions externally verified.

The EU ETS Registry is an online database that records:

• Carbon dioxide allowance allocations for installations;
• Annual verified emissions;
• Transaction history of allowance transfers;
• Annual reconciliation of allowances and verified emissions.

Application for an EU ETS UK Registry Account must be made online via the Registry Link (also accessible from the Environment Agency website). Guidance on applying for a Registry Account is also available here.

You must also apply for account representatives using form ETS4 (Excel File). Again, guidance is available from the Environment Agency website)

The CRC Energy Efficiency Scheme Order 2010 requires businesses using more than 6000 MWh electricity a year to register for the CRC between April and September 2010 and to report and record energy usage. 

From 2011 the EA will publish an annual league table of the best and worst CRC performers. Poor performers will be penalised whilst top performers will be rewarded. The CRC is an opportunity for large businesses to play their part in reducing dangerous carbon emissions. For businesses the main motivation to cut their energy use will be the bottom line.  Businesses cutting energy use stand to benefit from lower energy bills, and could be financially rewarded if they perform well in the energy efficiency performance table. Conversely poor ‘green performance’ could be damaging for a business's reputation.

Further information is available on the DECC and EA Website (see Guidance).

Applicable businesses must register on the CRC register before end September 2010 (see EA CRC Registry). The EA site also includes guidance on what organisations will qualify.

If registered on the CRC REgistry, a report on your organisation’s CO2 emissions must be submitted at the end of each reporting year by putting your emissions data into the CRC Registry (see EA Reporting Guidance)

A condition of the EU ETS permit is for the operator to submit a Monitoring and Reporting Plan (M&R Plan) to DECC for approval. Monitoring and Reporting Guidance for the Offshore Sector (Word document) is available on DECC website.

The following need to be monitored/measured under the EU ETS:

• Fuel consumption; and
• Flare volumes.

Emissions to be reported either on the basis of calculations or direct measurement. Measurement of emissions shall use standardised or accepted methods.

DECC Guidance on Offshore Sector Monitoring and Reporting is available on DECC website. A number of guidance documents are also available on the DEFRA website including factors for CO2 emissions and useful conversion factors.

The M&R Guidance sets tiers for monitoring requirements based on accuracy of the monitoring method. The Guidelines require that the highest tier approach shall be used by operators to determine parameters for monitoring and reporting purposes. Only if it is shown to the satisfaction of DECC that the highest tier approach is not technically feasible or will lead to unreasonably high costs, may a next lower tier be used.

In addition, operators must submit an Improvement Plan on an annual basis, to demonstrate how they intend to acheive monitoring and reporting requirements. There are no set requirements for Improvement Plans, as each installation is likely to pose different challenges.

Step 1 - quantify current measurement uncertainty.

Step 2 - identify necessary improvements.

Step 3 - undertake necessary cost and engineering studies.

Step 4 - schedule and implement necessary improvements (including allocation of necessary time and resources).

If there are problems with meeting the Improvement Plan, DECC should be contacted as soon as possible to advise the delay and amended timetable. Also see Snippets.

A number of annual reports are required to be submitted:

• Annual report on improvements towards the use of the highest tier approach for monitoring of major resources (ETS5/6); and
• Annual emissions report (ETS7).

The annual emissions report (ETS7) shall include:

• Installation/activity details;
• For each relevant activity for which emissions are calculated data to be provided on emissions factors, oxidation factors, total emissions and uncertainty;
• For each relevant activity for which emissions are measured, data to be provided on total emissions, reliability of the measurement methods and uncertainty.

Permit conditions will also include a requirement to report any breakdown or malfunction of any monitoring or reporting equipment.

Annual reports must undergo external verification before submission.

Any unused allowances at the end of each year must be surrendered (see Performance Standards).

Also see Performance Standards for reporting requirements under the CRC Energy Efficiency Scheme Order 2010 (for registered organisations)

The annual report on improvements towards the use of the highest tier approach for monitoring of major resources, should be undertaken using form ETS5/6 (Excel File). Guidance on completion of ETS5/6 (Excel file) is available from the DECC website.

Annual emissions under EU ETS must be reported annually using form ETS7 (January 2010) (Excel File available from DECC website). Guidance on completion of ETS7 for the offshore oil and gas industry is also available from DECC website. ETS7 will need to be externally verified before submission to DECC.

Monitoring and Reporting Guidance for the Offshore Sector (Word document) and Annual Emissions Reporting Verification (Word document) are available on DECC website. Additional guidance is available on the Environment Agency Website and the EU Website.

Completed forms should be submitted to DECC (LCU OED) by email at emt@decc.gsi.gov.uk

A checklist for monitoring and reporting requirements is available on the DEFRA website. In summary:

• Annual emissions report (ETS7) to be prepared (end December/January) each year;
• Submission of verified annual emissions report (ETS7) - 31 March each year;
• Surrender allowances (from UK Registry) - 30 April each year;
• Submission of annual monitoring improvements reports (ETS5/6) - 30 June each year

Notification must be given to DECC at least 14 days before making a change to the operation that will affect the description of the installation and its GHG emissions.

The EU ETS application form (see Consents) may be used to apply for a new permit or to apply for a variation to an existing permit.

Note that if additional allowance is required, that this will need to be applied for from the New Entrants Reserve (see Consents), which is strictly limited. Where no allowance is available, allowances will need to be purchased through the Trading Scheme.

Phase III will run 2013-2020 and will include year on year reductions in allowances with a driver of reducing EU emissions by 21% between 2005 and 2020. There will be no National Allocation Plans (NAPs) with allocations being managed centrally by the EU.

Initial Phase III reduction of 5% reduction in the EU cap compared with the average for Phase II. Another 5% will go to Phase III New Entrants Reserve. Allocation method is not yet clear. 80% of allowances will be allocated for free in 2013 declining each year to zero in 2020, except in the power sector where there are no free allowances. Where no free allowances available allocations will be made by auction. Corporate penalties will also be included. Not clear where oil and gas industry fits into the scheme (i.e. whether classed as power sector).

Carbon Capture and Storage - a separate Directive has been published. Credit will be given under EU ETS for CO2 captured and stored.

No CO2 from electricity power generation will get an allowance. Only CO2 generated by flaring and "mechanical power" (compression) will get allowances.

Presentations made by DECC at this seminar can be found on the DECC website. In addition, a Q&A fact sheet (PDF) is provided

For Phase II, DECC will not allow operators to submit improvement plans that do not demonstrate progress towards meeting the required measurement or reporting tiers under EU ETS. DECC will use enforcement notices and impose deadlines on operators as necessary to ensure compliance. Where operators cannot meet imposed tiers, verifiers will be forced to confirm "non verified" annual reports. Where operators submit "non verified" annual reports, emissions levels will be set based on historical data or maximum levels of uncertainty.

Fuel gas measurement - offshore oil and gas required to meet Tier 3 (+/- 2.5% uncertainty) during Phase 1 of EU ETS. Installations not yet achieving this should aim to have the required tier in place by end of 2008 unless there are exceptional circumstances that have led to a delay.

Flare gas measurement - offshore oil and gas required to meet Tier 2 (+/- 12.5% uncertainty) during Phase II of EU ETS. Most installations should aim to have the required tier in place by end of 2009. Operators will be required to submit timetabled proposals to demonstrate how they will meet the required tier.