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.

• Commission Decision 2007/589/EC establishing guidelines for the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC

This contains all requirements for the monitoring and reporting of greenhouse gas emissions under the Emission Trading directive (also see Pending Legislation)

• The Greenhouse Gas Emissions Trading Scheme Regulations 2005 as amended

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).

• 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.

• EU Decision 2011/278/EU on determining the transitional EU wide rules for the harmonised free allocation of emission allowances in accordance with Article 10a of the EU ETS Directive

• Commission Regulation (EU) No. 1210/2011 concerning the auctioning of EU-ETS allowances

• Commission Regulation (EU) No. 1193/2011 concerning the establishment of a single Union-wide EU-ETS Registry

• DECC Guidance on the Greenhouse Gas Emissions Trading Scheme Regulations (MS Word)
• Defra and DECC Guidance on how to measure and report your greenhouse gas emissions
• 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:

• DECC EU ETS webpage
• DECC Oil & Gas EU ETS webpage
• DEFRA climate change webpage
• Environment Agency EU ETS webpage

CRC Energy Efficiency Order Guidance

• DECC CRC Guidance
• Environment Agency index of CRC 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 (GHG Permit) under the EU ETS;

b) Application for an allowance.

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).

Facilities not receiving an allocation under the EU ETS will be required to purchase allowances through the Trading Scheme.

Allowances for existing operators under Phase III have been notified following an extensive data collection and benchmarking exercise. As of 30 June 2011, all other applicants will now need to apply through the New Entrants Reserve (NER) (see How to Apply below).

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

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).

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.

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 or Phase II will already have new allocations issued under Phase III.

There are two phases to NER applications:

• Phase 1 - before "normal" operations - allocations based on independently verified emissions; and
• Phase 2 - after start of "normal" operations - allocations based on average of two months of highest activity in a 90 day period after start of "normal" operations x 12.
• Normal operations is defined as a continuous 90 day period of operating at a minimum of 40% of design capacity.

For existing installations applying for extensions to allowances, see Permit Variation.

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

EU ETS registration (GHG Permit) must be in place before operations commence.

Applications for allowances under the New Entrants Reserve must only be made after production has commenced, and no later than within 12 months of start of normal operations.

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).

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. Guidance on applying for a Registry Account is also available here.

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).

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.

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.

A new monitoring plan will be required under Phase III. Draft EU Regulations are currently with the European Parliament and Council for approval. New DECC Guidance is anticipated in mid 2012.

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 O&G 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 Q&A (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

• 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.

DECC advises that during Phases I and II of the EU ETS, it has received requests to retrospectively approve changes impacting the Greenhouse Gases Emissions Permits at the time of verification of the annual returns. DECC makes it clear that it will not be prepared to issue retrospective approvals following the commencement of Phase III of the EU ETS on 1 January 2013.

It warns that this could result in the verifier refusing to approve the annual emissions report, which could lead to a significant cost penalty. As such, permit holders are reminded that they must immediately notify any changes that are relevant to their permit.

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 (linear reduction of 1.75% per annum). However, the oil and gas industry is currently an exception to this rule, with flat rates of allowances being given between 2013 and 2020.  This is still subject to final EU approval.  It is also not clear if this flat rate of allowances will apply to New Entrants.

There are also important changes in what will and what will not get free trading allowances:

• Any CO2 generated from electricity generation will not get any trading allowance at all. 
• CO2 generated by combined heat power (CHP) will get free allowances.
• There will be free allocations for safety flaring.
• There will be free allocations for energy used to generate heat (including waste heat recovery) and for direct drives.
• There will be no free allocations for routine/maintenance flaring and incineration. 
• There will be no allocation for inherent CO2 in fuel gas.
• Partial free allocation will be given at 80% of verified baseline emissions (2005-2007).  This does not apply to New Entrants. 

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

Heat Benchmarks - applicable to the oil and gas sector if heat could be metered. Some operators included calculated heat in their benchmark data collection to cover steam generation and Waste Heat Recovery (WHR).

Safety flaring - definition based on dialogue with OGP appears to allow free allocation for all flaring as non-electricity fuel use.

Process emissions - reservoir carbon dioxide may be eligible for free allocation, and the Commission is currently considering this issue.

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

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.