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Aviation emissions – new global deal looks likely

Government officials are negotiating a market-based mechanism to reduce emissions in the international aviation industry. Ministers from over 190 countries have gathered at the International Civil Aviation Organization’s General Assembly in Montreal to discuss and vote on a draft resolution. If passed, it will be the first industry-specific global market-based measure for CO2 emissions.
The prospects of achieving resolution are good. So far, 55 countries, including the US, China and EU member states have indicated their support for the proposal and agreed to sign-up for the initial voluntary stage. However, some states with large aviation emissions have yet to confirm their agreement and the EU has questioned how effective the measure will be in combatting climate change. A deal is expected by the end of the Assembly on 7 October.
The proposal aims to prevent the growth of aviation emissions beyond 2020 levels by requiring airlines to offset emissions with carbon credits. The mechanism would take effect on a voluntary basis from 2021, and become mandatory in 2027 with exceptions for some states which are less developed or have low aviation emissions. The offsetting obligations will be based on the sector average emission growth, and later move to incorporate the actual emission growth of individual airlines.

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Aviation emissions – new global deal looks likely

Reform of energy efficiency taxes – have your say

CRC, EU ETS, ESOS, Climate Change Levy – the alphabet spaghetti of overlapping environmental taxes, levies and reporting obligations on businesses grow every year.

Many think that the current system is too complicated,  and a distraction from improving energy efficiency. So it is good news that the Treasury is considering a much simpler system.

HM Treasury has released a consultation on reform of the energy efficiency tax landscape. The consultation is available here (https://www.gov.uk/government/consultations/consultation-reforming-the-business-energy-efficiency-tax-landscape) and closes on 7 November 2015.

The headline proposals are below.

Energy Consumption Tax

The Treasury proposes replacing the CRC Energy Efficiency Scheme and the Climate Change Levy (CCL) with a new single energy consumption tax (based on the CCL). Stakeholders are asked to comment on several issues, including:

  • How to best design a single tax to improve its effectiveness;
  • Should rates vary across businesses;
  • Whether different approaches are needed for different businesses.

Energy Reporting

The government is considering using the Energy Savings Opportunity Scheme (ESOS) as the primary tool for energy reporting. The consultation asks a number of questions on reporting, including:

  • Should reporting be mandatory;
  • Should reporting require board level approval;
  • Should reported data be publically available;
  • What data should be collected through the reporting scheme (e.g. GHG emissions, renewable energy proportion and actions taken to meet any audit recommendations)
  • Does a streamlined report enable market actors have access to transparent, reliable and comparable information in order to support financing and investment in efficient and low carbon measures.

Incentives

The Treasury is also consulting on incentives for energy efficiency and carbon reduction,  and the simplest way to enable businesses to access decarbonising incentives.

The results and corresponding reforms are likely to be announced in the 2016 Budget.

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Reform of energy efficiency taxes – have your say

The Offshore Safety Directive (5) – Government consultations

On 28 July 2014, the Government launched two consultations in parallel on the implementation of the Offshore Safety Directive (the OSD). One of the consultations is led by DECC and the HSE (the DECC/HSE Consultation) and the other is led by Defra and the Welsh Government (the Defra Consultation). Both consultations run from 28 July 2014 to 21 September 2014.

The DECC/HSE Consultation concerns the transposition of the OSD and the establishment of an offshore competent authority.  It also seeks comments on HSE’s proposals to update onshore oil and gas health and safety legislation to take account of emerging energy technologies and the review of two Approved Codes of Practice. The DECC/HSE Consultation annexes a suite of draft regulations for comment.

The Defra Consultation is narrower. It concerns the transposition of Article 38 OSD, which extends the scope of environmental liability under the Environmental Liability Directive to Marine Waters. Separate consultation exercises will be taking place later in the year in relation to marine waters off Scotland and Northern Ireland.

The safety and environmental regime which OSD required the UK Government to implement closely resembles the existing offshore regulatory regime in the UK.  Therefore this consultation does not involve proposals to completely dismantle and then reassemble the offshore regime.

However  there are some important issues that this consultation opens up for public comment and debate.  Oil and gas companies would be well advised to give careful consideration to the issues raised.  Key points of interest include:

  • Consolidation of legal duties under one appointed operator.  DECC take the view that as a result of the OSD the same entity must be appointed as both safety duty holder and operator under the Petroleum Act.  This is not consistent with the approach taken by many operators in the North Sea. The OSD requirements on this point need to be considered carefully.
  • Proposed new Competent Authority.  The OSD requires a single authority to be responsible for safety and environmental regulation.  The consultation proposes, as expected, a “competent authority” made up of both HSE and DECC to deliver this – similar to the Competent Authority under the onshore COMAH regime.  However, arguably this complicates rather than simplifies the current regulatory structure.  The new “hybrid” authority will be responsible just for the documentation required under the OSD, whereas operational environmental licences will still be issued by the existing offshore division within DECC.
  • Operator / Licensee Liability for Environmental Damage.  The OSD extends “environmental damage” under the Environmental Liability Directive to include marine waters.  This will have the effect of increasing the potential liability of operators to remediate environmental damage  in the event of a major spill from an offshore installation.  Article 7 of the OSD requires licensees under the Petroleum Act to be “financially liable” for such remediation work.  Defra are consulting on whether any changes need to be made to existing Environmental Damage Regulations to achieve this.

We will be reporting further on these and other points of interest in due course.

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The Offshore Safety Directive (5) – Government consultations

Round 14 for onshore oil and gas licensing: are fault lines emerging between DECC and environmental groups?

In December 2013 DECC published, and submitted for consultation, a Strategic Environmental Assessment (SEA) for further onshore oil and gas licensing. The SEA environmental report is required to identify the likely significant effects of proposed licensing on the environment, and identify the reasonable alternatives to DECC’s proposal. The consultation period closes on 28 March.  DECC will consider responses to the consultation before issuing a post-adoption statement that will summarise government policy on further onshore licensing.

Just as the consultation period was drawing to a close, six countryside and wildlife organisations, including the National Trust and RSPB, released a report entitled Are we fit to frack?”.  Referring to analysis in the SEA environmental report prepared by AMEC, the Are we fit to frack? report sets out concerns about the potential impact of unconventional onshore oil and gas developments on protected species and habitats in the UK.

Analysis in the report indicates that a significant proportion of land currently “under licence” comprises designated protected areas of one kind or another (e.g. 5.1% being sites of special scientific interest; 5% being national parks; and 9.8% being Areas of National Outstanding Beauty).  The analysis also indicates that a greater proportion of the land being considered in the 14th licensing round is similarly protected.  Despite this, the National Trust, RSPB, Wildlife Trust and Wildfowl and Wetlands Trust between them own only a very small proportion of these areas.  Perhaps as a result, the first of 10 recommendations made by the report is the creation of “shale gas extraction exclusion zones” to avoid sensitive areas for wildlife and water resources.

The SEA environmental report concludes that the existing regulatory framework will identify, assess and mitigate to an acceptable level any environmental effects. It states that construction and operational best practices can minimise effects to a level that is acceptable to both regulators and communities. By contrast, Are we fit to frack? describes the current regime as not fit for purpose. The report considers the current safeguards are too reliant on self-inspection and the HSE ,which “does not have the necessary specialist knowledge”.

The UK Onshore Operator’s Group (UKOOG), promptly published a response to the report on its website.  Chief Executive  Keith Cronin commented, We have studied this report and the fact is that many of the recommendations are already in place in the UK or are in the process of being put in place. We hope that the publication of this report, despite a number of critical inaccuracies, will kickstart a process of open dialogue which we have already proposed to conservation agencies.”

Are we fit to frack certainly has the potential to kickstart a constructive dialogue.  However, it also has the potential to polarise the debate, with important stakeholders on each side.  Indeed the debate already looks adversarial, with the current UK Government adopting an entrepreneurial “pro-shale” stance, but the EU Commission, conservation groups, and local residential groups all urging caution.

This emerging fault line could pave the way for legal challenges against decisions taken by DECC in the 14th licensing round.  Demonstrating the absence of harmful effects on protected species (for the purposes of the Habitats Directive) could prove costly for developers, whether this is tackled at the licensing / consenting stage, or subsequently in court.

The prospect of legal challenges can lead to considerable uncertainty for developers and investors.  More generally, the impact of the Are we fit to frack? report on public perception should not be overlooked.  Unlike other published environmental assessments, the report was widely covered in the media, thereby contributing to the groundswell of public concern about fracking.  This recently released video from the European Commission summarises the divergence of public opinion on fracking.  Both the video and the Are we fit to frack? report emphasise that navigating the route to achieving a “social licence” is inextricably linked to the route to obtaining regulatory consents.

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Round 14 for onshore oil and gas licensing: are fault lines emerging between DECC and environmental groups?