Environment Update April 2010
CRC ready and set to go
The Publication of the CRC Energy Efficiency Scheme Order 2010 marked the official start of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme on 1 April 2010, whilst anticipated guidance has been issued by the Environment Agency (EA) to accompany the Order. The CRC has been designed to reduce carbon emissions through improving energy efficiency in public and private sector organisations who consume large amounts of electricity. It will apply to all organisations that consumed at least 6,000 megawatt hours (MWh) of electricity through half-hourly meters (HHMs) during the calendar year of 2008. These organisations will be legally bound to closely monitor and report their emissions from energy use in preparation for carbon trading.
An ambitious carbon initiative, the CRC will evolve into a ‘cap and trade scheme’. The introductory phase (April 2010-2013) will not have a cap, and in 2010 organisations will simply have to count their emissions. Year two, 2011-2012, will secure the sale of emissions allowances at a fixed price of £12 per tonne of CO2. Payments will be ‘recycled’ back to CRC participants 6 months after the allowances are auctioned, on a performance-based scale, in proportion to their emissions. Therefore the revenue neutral CRC offers participants the incentive to score high emission reductions on the EA’s ‘CRC Performance League Table’, as performance will determine whether recycled payment will be adjusted by a penalty or bonus. From April 2013 the CRC will become a cap and trade system, like the EU Emissions Trading Scheme (ETS) – this will limit the total amount of carbon dioxide these organisations can emit by capping the total number of allowances available and selling them at auction instead of at a fixed price.
Although the CRC Order establishes the framework for the seven phase trading scheme, the recently issued EA guidance clearly informs participants of their obligations throughout the CRC, including updated guidance on registration requirements for qualifying participants who must register by 30 September 2010 via the CRC online registry. The EA has also issued supporting guidance on the essentials of the CRC, including ‘evidence packs’ that will provide the basis for the footprint and annual reports. The reports will depend upon ‘primary’ documents and records which illustrate the participant’s CRC emissions.
Separate guidance is provided on the key task of preparing and submitting footprint reports and annual reports for each CRC phase. In the introductory phase, both the footprint year and annual year run together. However, in Phase 2 (April 2013-March 2018) the footprint year will be one year before the first annual reporting year. The purpose of the footprint report is to demonstrate that at least 90% of energy supply is covered by CRC core gas and electricity supplies, the EU ETS or a Climate Change Agreement (CCA), to combat climate change. Participants are required to submit annual reports for the purpose of summarising actual CRC emissions from the energy supplies covered by the footprint report, and potentially some residual supplies if the total emissions fall short of meeting the minimum of 90% emissions output for the footprint year.
Organisations with 25% of their emissions covered by a CCA during the first year of the CRC phase are exempt from participating in the CRC. Although EU ETS emissions must be reported to determine the overall CRC emissions, to avoid overlap with the EU ETS, they will not themselves be considered to have been consumed for the purposes of the CRC.
The CRC Energy Efficiency Scheme Order 2010 is available through the following link:
http://www.opsi.gov.uk/si/si2010/draft/ukdsi_9780111491232_en_1
Links to all the EA guidance on the CRC may be found via the following link:
http://www.environment-agency.gov.uk/business/topics/pollution/116626.aspx
Semple Fraser has produced a full briefing on the CRC, click here to view.
Energy Act 2010 recharges CCS
This month saw the publication of the Energy Act 2010, which provides the statutory investment in CCS technology to support the construction of four new CCS demonstration projects by 2020. The Government’s Carbon Capture Storage (CCS) Strategy, published in March, is aimed at ensuring that firms exploit the opportunities offered by CCS, and therefore outlines proposals for developing CCS for coal-fired power stations on a commercial scale, underlined by the offer of key financial incentives. These include a new funding competition, increasing opportunities for firms in the CCS supply chain (by establishing low carbon economic areas (LCEAs) to boost the growth of low carbon industries in regions with existing assets), and supporting innovation to develop CCS and cut its cost.
The new Energy Act establishes the financial assistance that will be available to bring forward four new CCS demonstration projects and the support for the retrofit of additional CCS capacity to those projects if required at a later date. Moreover, it confirms the requirement on the Government to prepare regular reports on the progress made on the decarbonisation of electricity generation in Britain and the development and use of CCS.
Meanwhile it addresses wider issues in the energy field, aiming to create a fair market for energy consumers. The Act introduces ‘Schemes for reducing fuel poverty’, creating a framework to authorise mandate companies to provide support to the fuel poor – gas and electricity suppliers will have powers to give greater guidance and direction on the type of households eligible for support, with the offer of lower charges to ‘scheme customers’ as comparable to other customers.
Ofgem are given a definitive role with the Act. It clarifiers Ofgem’s remit in consumer protection, declaring that Ofgem’s assessment of the interests of consumers must include the reduction of carbon emissions and the delivery of secure energy supplies. It also states that there must be more proactive intervention from Ofgem in protecting customers, as well as considering longer term actions to promote competition. Ofgem are also given the core responsibility to tackle market exploitation where companies might take advantage of constraints in the electricity transmission grid.
The Energy Act may be accessed via the following link:
http://www.opsi.gov.uk/acts/acts2010/ukpga_20100027_en_1
The CCS Strategy may be viewed by clicking on the following link:
http://www.decc.gov.uk/en/content/cms/what_we_do/uk_supply/energy_mix/ccs/occs/occs.aspx
Environmental enforcement regime enters into force
Two key pieces of legislation published this month mark the official arrival of the environmental civil sanctions regime granting new powers to the Environment Agency (EA) and Natural England to enforce environmental law without recourse to the courts.
Firstly, the Environmental Civil Sanctions (England) Order 2010 sets out the basis on which civil sanctions may be used, the offences in primary legislation for which civil sanctions may be imposed and specifies which civil sanctions are available for each offence. Secondly, the accompanying Environmental Civil Sanctions (Miscellaneous Amendments) (England) Regulations 2010 sets out the same information as the Order in relation to offences in secondary legislation. The Order and the Regulations are meant to be read jointly – the civil sanctions introduced in the Regulations must be used on the basis set out in the Order.
Following review of the environmental enforcement regime, it was decided that the current system was over reliant on criminal prosecution or lacking in flexibility. Subsequently, regulators have been presented with a set of modern, proportionate and risk-based sanctions to use, producing six core sanctions available for statutory offences under a range of key environmental legislation.
The six core sanctions are outlined as follows:
-
Fixed Monetary Penalties (FMPs) – a low level fine fixed by legislation that the regulator may impose for a specified minor offence (£100 for individuals and £300 for corporations);
-
Variable Monetary Penalties (VMPs) – the EA can impose VMPs more directly for more serious offences than it could for FMPs;
-
Compliance Notices – may be used to bring the offender back into compliance in the case where the offender has previously been in compliance with a requirement, but is currently not fulfilling their obligations;
-
Restoration Notices – may be used where damage has been caused to the environment and the action and work needed to address the damage can be identified and carried out by the defender;
-
Stop Notices – may be used to stop immediately any activity that is causing or which poses a significant risk of causing serious harm to the human health and the environment and where an offence is being or is likely to be committed; and
-
Enforcement Undertakings – introduced to form voluntary agreements between the offender and the regulator, where the offender makes an offer, formally accepted by the regulator to take steps that would make amends for their non-compliance and its affects.
The Civil Sanctions Order and the Regulations may be accessed via the following links:
http://www.opsi.gov.uk/si/si2010/uksi_20101157_en_1
http://www.opsi.gov.uk/si/si2010/uksi_20101159_en_1
Meanwhile, the EA is currently consulting on how it intends to exercise its new powers under the new legislation. The consultation document, entitled 'Fairer and Better Environmental Enforcement: Implementing the New Civil Sanctions', explains that the EA’s Enforcement and Prosecutions Policy (EPP) will be replaced by an Enforcement and Sanctions Policy (ESP), to reflect the new regime and the key underlying principles behind its enforcement. These include proportionality and the EA’s commitment to accountability for its actions – appeals will play a significant role in ensuring that the EA justifies its actions in certain cases, and a criminal standard of proof will apply before sanctions are imposed (other than for Enforcement Notices or Stop Notices). All appeals against an EA decision will be made to the First-Tier Tribunal of the General Regulatory Chamber.
In addition, the ESP embodies the EA’s commitment to weigh up contributing factors such as the environmental effect of the offence; the nature of the offence; the financial implications involved (such as whether the offence set out to save costs, by not obtaining a permit, for example); and whether deliberate intent or gross negligence played a part, when deciding which sanction to apply or whether the offence merits prosecution.
Responses to the consultation are invited by 7th May 2010. Thereafter, further guidance will be issued within 6 weeks of the close of the consultation (21st June 2010), and the EA expects to start using civil sanctions in September 2010.
To view the consultation document and for details on how to respond, click on the following link:
https://consult.environment-agency.gov.uk/portal/ho/br/civil/sanctions?pointId=1269274583252
Renewable energy receives a further boost
The UK has been pushed closer towards meeting its renewable targets under the Renewables Obligation (RO) with an amendment to the Renewables Obligation Order (ROO) 2009. The RO is enshrined in the 2009 Order, and operates as the Government’s main mechanism for increasing the deployment of renewable electricity generation and rewarding licensed electricity suppliers with RO certificates (ROCs) for a specified number of megawatt hours of renewables electricity generated (ROCs per MWh). However, the Renewables Obligation (Amendment) Order 2010 has been brought in to introduce a number of changes aimed at increasing the impact of the RO policy.
Essentially, the Amendments demonstrate the UK’s commitment to meeting the binding targets under the EU Renewable Energy Directive 2009 to source 15% of its total energy from renewables by 2020. Therefore, key changes have been introduced to extend and modify the RO in order to increase deployment of renewable generation capacity in the UK:
-
Extending the RO end date an extra 10 years to 2037 – this has the purpose of giving investors certainty of a return on their investment necessary to incentivise them to invest in new generation up to 2020;
-
Removal of the 20% cap on the size of the RO – following adoption of the EU 2020 targets which require renewable energy to increase beyond 20% of total electricity, the RO will be calculated within a larger capacity;
-
Increasing the level of support for new offshore wind generation that meets specific criteria following evidence that costs have risen and recognition that offshore wind, which is expected to make a key contribution to the achievement of the UK's 2020 target, requires additional support under the RO. Therefore the banding has been amended to fit the level of support for offshore wind which has risen from 1.5 ROCs/MWh to 2 ROCs/MWh for stations accredited between April 2010 and March 2014. The increased support is also available where capacity is added to a station in that period; and
-
Provision for certain micro and other generators under 5MW who are covered by the new mechanism ‘Feed in Tariffs’ scheme (since 1 April 2010) – the Amendments remove all microgenerators eligible for FITs from the ROO, whilst giving certain small generators the choice between the FIT and the RO.
In addition, the Amendments clarify that electricity generated from sewage gas or landfill gas are excluded from the requirement to provide sustainability reporting information, given the nature and source of the biomass content of each. It also provides definitions of dedicated biomass with CHP and dedicated energy crops with CHP generation types not included in the 2009 Order.
The Order may be accessed through the following link:
http://www.opsi.gov.uk/si/si2010/pdf/uksi_20101107_en.pdf
Highlighting the Habitats Directive
The scope of the Habitats Directive (92/43/EC) recently came under question before the High Court in R on behalf of Akester and Melanaphy v Department of Environment, Food and Rural Affairs and Wightlink Ltd, whilst at the same time exposing a particular loophole in the UK’s implementation of the Directive. The case revealed that the UK Habitats Regulations had not been designed to cover operations on water which might trigger the requirement for an appropriate assessment within the meaning of the Directive, prompting a swift amendment to address its shortcomings.
Sites designated under the Habitats Directive are labelled Special Areas of Conservation (SAC), reflecting the overall aim of the Directive to protect endangered species and habitats across Europe. Article 6 imposes general obligations to secure the conservation of SAC’s and prevent their deterioration, and lays down the boundaries for permitting a ‘plan’ or ‘project’ likely to have significant negative effects on the site, including whether it be subject to an appropriate assessment.
The case arose from a claim made on behalf of the Lymington River Association (LRA), a group of local residents and users of the Lymington river, Hampshire, challenging the decision of ferry operator Wightlink, to introduce a new class of ferry on the route between Lymington and Yarmouth, which passes through a SAC. The new class of ferry was substantially larger in size and more powerful than the previous type, which according to the LRA, should have undergone an appropriate assessment.
It is worth noting that Wightlink had previously dropped proposals requiring planning permission for construction works on the pier which had caused initial concern from Natural England, prompting the local planning authority to decide that the application should undergo the appropriate assessment. However, it was Wightlink’s subsequent decision to drop these proposals and simply introduce new ferries which revealed the gap in the existing law – despite advice from Natural England that the new ferries would cause further losses to the SAC based on the fact that the existing ferries had already contributed to its deterioration, it transpired that the replacement of a ferry in itself did not require consent from a public authority.
The original terms of the Regulations referred only to operations in respect of 'any land' within a European site as requiring consent, if viewed as compromising the Directive’s conservation objectives. Consequently, it was claimed that DEFRA’s failure to properly implement Article 6 had enabled Wightlink to go ahead and introduce its new ferries because there was nothing in the regulations to prevent them from doing so.
DEFRA conceded that it had failed to properly implement Article 6, and the Regulations were correspondingly amended to widen the provision to include operations which were carried out on land 'or elsewhere', therefore covering operations on water. However, as the amended Regulations did not have retrospective effect, the Court still had to consider the issues which arose prior to the amendment being introduced.
The Court therefore approached the claims by answering some key questions to conclude that the introduction of the ferries had been unlawful. Crucially, it had to consider whether the mere introduction of a new type of boat onto an existing ferry route amounted to a plan or a project which triggered the need for an assessment within the meaning of the Directive. Referring to settled case-law, it asserted that Article 6 was clearly meant to be interpreted in light of its broad objective, namely a high level of protection for the environment – an interpretation driven by the Directive’s underlying precautionary principle. In the court’s eyes, the precautionary principle acted to allow Wightlink’s new ferries to be considered as a ‘plan or project‘ within the meaning of the Directive, precisely due to the potential impact that they would have on the environment.
Moreover, the Court decided that Wightlink (who despite being a private company was the 'competent authority' to conduct an assessment in its role as the statutory harbour authority), had not carried out an appropriate assessment in rejecting the advice of Natural England, whose concerns as a statutory conservation body should have been given weight over environmental consultants commissioned by Wightlink.
The text of the judgement may be viewed via the following link:
http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Admin/2010/232.html&query=title+(+Akester+)&method=boolean
The matters covered in this ebulletin are intended as a general overview and discussion of the subjects dealt with. They are not intended, and should not be used, as a substitute for taking legal advice in any specific situation. Semple Fraser LLP will accept no responsibility for any actions taken or not taken on the basis of this publication.
FOR FURTHER INFORMATION PLEASE CONTACT: FIONA ROSS