On Friday 29 March the government issued the latest update to its "no deal" guidance on the EU Emissions Trading Scheme (ETS). This reflected changes made to the deadline for surrendering EU allowances in respect of the 2018 compliance year in amending Regulations a week earlier – and just hours after the European Council extended the Article 50 Brexit deadline.
In the absence of Brexit, the normal surrender deadline would have been 30 April 2019. This was first brought forward (in 2017) to 15 March 2019, then (on 8 March 2019) pushed back to 26 March 2019. On 22 March 2019 it was re-set in a way that reflects the different possible Brexit outcomes contemplated in the European Council's decision.
The allowance surrender deadline for 2018 now stands at 10.59pm on 12 April 2019, because that is the date currently set as "exit day" under the European Union (Withdrawal) Act 2018. However, if exit day is postponed by further legislation, the allowance surrender deadline will also move. If the new exit day is before 1 May 2019, the surrender deadline will be immediately before exit. If the new exit day is on or after 1 May 2019, the surrender deadline will end up back where it started, on 30 April 2019.
The ETS, which covers approximately 45 per cent of the EU's output of greenhouse gases, applies to around 12,000 operators in the EU and includes factories, power plants and airlines. The regulation applies to around 1,000 installations and 140 aircraft operators in the UK. In a previous statement, the government made it clear that the deadline for UK operators to report their 2018 emissions to the regulator remained 11 March 2019 (a deadline which has not been revisited), so all businesses covered by the regulation should have complied with their reporting obligations on this date.
UK operators should also consider how a "no deal" exit from the EU will affect how their emissions allowances for 2019 are treated. As a measure to protect the ETS market from a deluge of UK allowances for which there was not an equivalent level of UK demand, any free allowances issued by the UK government would have had to be marked with a country code, making them incapable of being surrendered unless and until the EU / UK Withdrawal Agreement was ratified. So far the UK government has issued no 2019 allowances pending certainty on the form and timing of Brexit. If the Withdrawal Agreement were to be ratified, the UK government would be able to issue EU allowances in the ordinary way for 2019; if the UK leaves the EU with no deal, UK operators will not need any 2019 allowances because they will not be subject to an EU allowance surrender obligation for 2019.
This update provides some short-term clarity on the deadline to surrender allowances, and will be useful for businesses as it allows for additional time to meet their EU ETS compliance obligations. However, the clear takeaway from the update should be that any operators who are obliged to surrender their allowances under the scheme should carefully monitor any changes to the planned date of the EU exit day and what form that exit will take.
A further point to note for operators who have satisfied their 2018 surrender obligation and still find themselves with a surplus of EU allowances in their accounts is that, in the event of a no deal Brexit, they will lose access to those allowances – as well as having no further need to surrender them in respect of their operations. Operators in this position may wish to give urgent consideration to finding a way to monetise any such surplus before it is too late for them to do so.
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