Emissions Trading Scheme (ETS) – Energy from Waste (EfW) Implications for Local Authorities Part 1 – Introduction to ETS

This is the first of four Frith Resource Management blogs on the UK ETS. The first introduces and explains the ETS-EfW scheme, the second reviews the current DESNZ consultation, the third discusses fossil carbon. The fourth identifies ETS-EfW Allowance costs, their avoidance and mitigation, and look at the future of ETS-EfW under net zero obligations.

The UK Emissions Trading Scheme (UK ETS) came into operation on 1 January 2021 (https://www.legislation.gov.uk/uksi/2020/1265/contents/made) after the UK left the EU on 31st January 2020. The UK ETS results from the EU ETS (https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets_en) and is designed as a reflection of the EU-ETS, but they are not financially linked, and different approaches may be taken moving forward.

On the 18th December 2022 the European Parliament and Council reached an agreement, and the UK Government followed suit, to include EfW facilities in the EU Emissions Trading System (EU ETS) with monitoring and reporting from January 2026, and verification from January 2028 (MRV – monitoring, reporting and verification).

The UK Government, Scottish Government, Welsh Government and Department of Agriculture, Environment and Rural Affairs for Northern Ireland collectively constitute the UK ETS Authority to oversee the UK ETS scheme. The UK ETS works on the ‘cap and trade’ principle as the EU ETS. The UK ETS Authority will set an annual limit set on the total tonnage of UK CO2 equivalent greenhouse gas that can be emitted by the installations and aircraft operators covered by the legislation. Within this there will be a cap on fossil carbon emissions from UK EfW facilities. The cap is reduced annually in line with the UK’s climate targets.

The cap is expressed in emission Allowances, where one Allowance gives the right to emit one tonne of CO2eq (carbon dioxide equivalent). For each year, EfW facility companies must surrender enough Allowances to fulfill their emission Allowances, otherwise heavy fines are imposed. Companies can also trade Allowances in the UK ETS marketplace as needed.

The revenues from the UK ETS are fed into national budgets which are partly used to support the administration of the scheme and investments in renewable energy, energy efficiency improvements and low-carbon technologies. The UK has set ambitious target to reduce carbon emissions by 68% by 2030 compared to 1990 levels. This is noticeably greater than the 55% by 2030 set by the EU ETS.

UK Emissions Trading Scheme

The UK ETS trading scheme applying to EfW may be summarised as follow:

• ETS is a Compliance Scheme and not a Voluntary Scheme

• It is a “Cap and Trade” scheme

• 1 ETS Allowance = 1tCO2

• Gases included in the UK ETS scheme which need to be monitored are carbon dioxide, nitrous oxide and perfluorocarbons (PFCs)

• It will apply to EfW facilities above 25,000tpa from 1st January 2028 with a yearly Allowance for emissions for each EfW facility to 31st December. Operators must monitor and report their ETS emissions, and buy/trade Allowances and/or be given free Government Allowances. The ETS scheme is being introduced from 1st January 2026 with two years of monitoring and information gathering

• The Government will set a decreasing cap on free Allowances from 82,000tCO2 in 2022 to 22,000tCO2 in 2030 - UK ETS Allocation Table for the 2021 to 2025 allocation period - GOV.UK (publishing.service.gov.uk)

• Each EfW facility will need to get a GHGE (Greenhouse Gas Emissions) Permit, monitor annual emissions, report by 31/03, gain independent verification, then surrender equivalent Allowances by 30/04

• The current base Allowance price is £20/tCO2, with an Auction Reserve Price of £22/tCO2, Default Carbon Price of £64/tCO2 and an Excess Emissions Penalty of £100/tCO2

• This is not Criminal legislation but Civil legislation with prosecution for non-compliance in the Civil courts with fines of Fixed Sum; Fixed Sum + Daily Charge; or Prescribed Formula

• The ETS scheme is regulated by the Environment Agency in England. It applies to the four UK nations and the oceans/seas around the UK

• The requirements of the ETS scheme should now be referenced in waste treatment procurement tenders

• The UK is operating ETS with the same principles and aligns with the EU ETS scheme. The EU ETS scheme has been operating since 2005 for heavy carbon emissions industries and is planned to be operational to 2050

• UK operators can only trade UK ETS Allowances

• The ETS applies to Fossil carbon waste (oil based) combusted at EfW facilities but not Biogenic (e.g. food / plant based) wastes. Only the fossil derived CO2 emissions from waste combustion count

• EfW operators can utilise and/or store their carbon emissions rather than emit them into the atmosphere. They will get Allowances for utilisation and/or storage minus leakage from pipelines + carbon emissions from the energy used in transfer/storage

• UK EfW operators may buy/obtain Allowances from UK carbon sequestration sources e.g district heating schemes, forestation schemes. Allowances from sequestration sources count as negative emissions

• An issue for all existing waste treatment contracts will be who pays the ETS Allowance cost – the operator (Contractor) or the owner of the waste (Client). It is a Qualifying Change in Law (QCiL) issue that could require significant legal advice. If ETS is a QCiL under a EfW waste treatment contract then the Contractor can pass the Allowance cost to the Client

• The EfW ETS cost can be reduced by removing Fossil based waste (plastics) from the combusted waste, subject to the measurement method and sampling / operating practice (see blogs 2 & 3 in this series).

• 1tCO2 from 1 t Biogenic waste, 1.67tCO2 from Fossil waste (although in practice this is more nuanced, see Blog 2)

• The Environment Agency has post-combustion carbon dioxide capture: emerging techniques guidance (https://www.gov.uk/guidance/post-combustion-carbon-dioxide-capture-best-available-techniques-bat). Carbon Capture, Utilisation & Storage (CCUS) is the umbrella term for techniques to capture CO2 (fossil and biogenic) for the purposes of long term storage or usage in industry.

• Amines based solvents may be used absorb CO2, although this is currently a challenge at EfW facilities due to the accumulation of heat stable salts in amine-based solvents. It is not proven technology at scale in the UK, but there are extensive developments underway, including for EfW plants

• CCUS projects are a financial risk due to the unknown market price of carbon Allowances

• Little/no dilute and disperse predicted from pumping CO2 into North and Irish sea gas fields and liquid CO2 could be pumped into the sea where it should lay on the seabed as it is heavier than water

Parts 2, 3 and 4 of this series look further at the implications of the ETS for local authorities.

Frith Resource Management provides technical support to local authorities and the private sector on collection, treatment and disposal issues, for details see www.frithrm.com, call 01746 552423 or email info@frithrm.com.

Page 1 of 26 Next

Previous News