Data Centres: Update on EU ETS
11 Jun 2020 05:08 PM
Government to implement Article 27A but will still require three years of verified data.
The Government published further elements of its response to the 2019 EU ETS consultation this week, to which we submitted input last year, plus additional commentary. We are focused very minutely on provisions for exemption for operators under Article 27a.
Government confirmed last October their intention to apply exemption for ultra small emitters. See pages 18-25 of this original, more detailed response regarding Article 27A.
We pushed for relaxation of the verification rules but this latest update confirms that three years of verified data will be required and provides a rationale. So it looks as though UK will respect this exemption in both a linked or standalone scheme but operators will still have to provide three years of verified data in order to demonstrate that sites do not need to, er, provide verified data. The latest government response provides further details. I have extracted the relevant passages and pasted them below. All the documentation can be found here: https://www.gov.uk/government/consultations/the-future-of-uk-carbon-pricing
Q21a) Do you support an Ultra-Small Emitter Exemption for installations emitting less than 2,500t CO2e per annum? (Y/N)
Q21b) Please expand on your answer and give evidence where possible.
Q22a) Do you have any other comments on our proposals for an Ultra-Small Emitters Exemption in a UK ETS? (Y/N)
Q22b) Please expand on your answer and give evidence where possible.
Summary of Responses
166. We received 46 responses to this question, from which 72% support an Ultra Small Emitters Exemption for installations emitting less than 2,500t CO2e per annum. 81% of current EU ETS participants who responded, and 69% of non-participants who responded, support this proposal. For those that disagreed, some stated that emissions covered from eligible installations were still significant, one stated that all installations should be cutting emissions.
167. In addition, 14% of respondents expressed support for a higher threshold, suggesting alternatives ranging from 5,000t to 50,000t CO2e.
168. Respondents were mostly supportive of the proposals put forward for the Article 27a scheme outlined in Chapter 4: Continued UK Membership of the EU ETS for Phase IV. The areas that received significant feedback from respondents were the process for an installation’s entry onto the Article 27a scheme (requiring three years of third-party verified data) and the proposed approach to not implement the Article 27a operating hours provision on reserve or backup generators.
UK Government’s and Devolved Administrations’ response
169. We will implement an Ultra-Small Emitter Exemptions for installations with emissions lower than 2,500t CO2e per annum and this position was supported by the majority of respondents. This scheme will have a design as outlined for the Article 27a scheme in the government response to Chapter 4 of the consultation.
170. The 111 UK operators that applied to participate in the Phase IV Article 27a scheme would collectively represent less than 0.1% of UK EU ETS emissions. The scheme therefore reduces cost and administrative burden for a large number of installations without any significant impact on UK emission reduction targets. Many of these installations, for example data centres, use back-up generators which only run irregularly and therefore emit below 2,500t per annum.
171. Considering the very hands-off approach of the scheme which requires no reporting or verification, we do not consider it appropriate for installations with emissions higher than 2,500t. Doing so could reduce climate ambition significantly as these installations face no obligations to reduce emissions.
172. We recognise the concerns raised by respondents on the inclusion of small gridconnected electricity generators in Ultra-Small Emitters Exemption. Considering that many generators that fall into this category only run irregularly as back-up generators, we will at present maintain the scope of this exemption.
173. We recognise the administrative challenge of requiring third party verified data, but we also note that it is essential to allow for the hands-off approach of the scheme. Due to the positive response from stakeholders in responding to the Article 27a provision set out in Chapter 4, we will implement those proposals in the UK ETS. Please see our separate response to Chapter 4 for a more detailed response
Summary of proposals
174. In the consultation, we proposed mirroring the EU ETS approach to adjusting the overall cap for those installations entering the Small Emitter Opt-Out or Ultra-Small Emitter Exemption schemes. The system-wide quantity of allowances for the allocation periods could be adjusted to reflect installations choosing to opt-out or be exempt by subtracting their average annual verified emissions in the periods from 2016-2018 and 2021-2023 respectively, adjusted by the trajectory of a UK ETS cap.
175. We also sought views and suggestions from stakeholders on a potential method whereby adequate certainty over likely emissions and targets for a new installation could be determined, to allow them to enter the relevant scheme immediately without first having to enter the main trading system.
Q23: Do you agree with the proposed mechanism for recalculating the system-wide number of allowances to be issued at the start of the phase and at the mid-point of the phase?
Q24: In the absence of historical emissions data, how could the regulator make an environmentally robust assessment of the eligibility and emissions target of a new entrant for the Small Emitter Opt-Out or the Ultra-Small Emitter Exemption, without undermining the environmental integrity of the system?
Summary of responses
176. From the 38 responses received on question 23, 63% agreed with the proposed mechanism for recalculating the cap to account for installations entering the Small Emitter Opt-Out or Ultra-Small Emitter Exemption schemes.
177. Of those who agreed, 29% indicated that this was based on a preference to be able to link to the EU ETS. Five respondents stated that the level of emissions associated with these emitters is too low to justify a recalculation of allowances.
178. 24 respondents submitted various suggestions for how to assess eligibility and targets for new entrants for the Small and Ultra-Small Emitter Schemes. These included using existing data on emissions intensity for specific technology types, using published emissions factors and calorific value data or using data from other environmental programmes such as the Energy Savings Opportunity Scheme
UK Government’s and Devolved Administrations’ response
179. We will implement the proposal as set out in the consultation. We also note that most respondents agree with this approach.
180. On assessing eligibility and targets for new entrants into the Small Emitter OptOut in the absence of 3 years of historical emissions data, we will allow regulators to make an assessment of eligibility before the UK Government and Devolved Administrations take a decision. Initial targets will be based on an environmental robust estimation of emissions. Targets will then be re-adjusted based on actual verified emissions data from the first years of operation. This will allow installations who have a large degree of certainty over likely emissions to enter directly into the Opt-Out scheme at the beginning of each allocation period while ensuring the regulator is able to reach an environmentally robust assessment. However, considering the very hands-off approach of the Ultra-Small Emitter Exemption with no reporting requirements, we will in all cases, require 3 years’ of historical emissions data to ensure confidence in likely emission levels.