Debate contribution: Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2024

Debate contribution by Mr Andrew Muir on 26 November 2024.

MLA

Mr Andrew Muir

Party at the time

Alliance Party

Date

26 November 2024

Type

Debate contribution (made as a minister)

Business

Executive Committee Business

Heading

Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2024

Assembly identifier

Official Report component 4677272

Read the official Assembly record

Text

I beg to move

I am grateful for the opportunity to move the motion. The UK emissions trading scheme (UK ETS) was established in 2020 under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions trading scheme to encourage cost-effective emissions reductions.

It helps to contribute to the achievement of greenhouse gas reduction targets set in the Climate Change Act (Northern Ireland) 2022 along with wider UK emissions reduction targets and net zero goals. The scheme replaced the UK's participation in the EU emissions trading system (EU ETS) and came into force on 1 January 2021. It may be helpful, at this point, to provide a brief summary of the operation of the UK ETS. It is based on a cap and trade principle and requires participants to purchase and surrender a carbon allowance for each ton of carbon dioxide that they emit. The more carbon dioxide emitted, the more allowance is required. There are penalties for failure to obtain and surrender the requisite number of allowances. Participants face a choice between paying to emit or investing in decarbonisation. A cap is set on the total number of allowances available under the scheme and is gradually reduced over time. The aim is to encourage reductions in emissions. Scheme participants, with the exception of electricity generators, receive free allowances, which cover a proportion of their emissions. That is known as "free allocation", and its purpose is to prevent carbon leakage: industry relocating to other parts of the world that either do not have costs for carbon emissions or have costs that are lower. It is important to note that, in the Northern Ireland context, there is an exclusion from the scope of UK ETS for Northern Ireland's six electricity generators, which remain in EU ETS to preserve the functioning of the single electricity market on the island of Ireland. If generators, North and South, were to participate in different emissions trading schemes, there could be a carbon price divergence, which could distort the operation of the single electricity market. To give some context of the scale, there are around 900 UK participants in the scheme and 17 in Northern Ireland, along with two registered aviation operations. Those installations, along with the six electricity generators that I have already mentioned, account for approximately one fifth of all greenhouse gas emissions in Northern Ireland. To note, only around 17% of that figure is attributable to emissions from UK ETS participants. The majority — around 83% — arises from electricity generators. I return to the legislation. Since the previous Assembly approved the Greenhouse Gas Emissions Trading Scheme Order 2020, which I will refer to as the 2020 Order, the scheme that was established has been amended and supplemented, through further instruments, to ensure that it continues to function effectively. The amending Order before us today includes Northern Ireland within the scope of the legislation made on a GB-only basis during the recent Assembly suspension, in addition to implementing net zero-aligned emissions. The proposals contained in the Order were subject to a joint UK-wide consultation between March and June 2022. The response to the consultation was published in July 2023 and included a commitment to implement a net zero-aligned cap on emissions with effect from 1 January 2024. The Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2024 was laid in draft before the Northern Ireland Assembly on 22 October 2024, under the Climate Change Act 2008, which requires that the Order be laid in draft and debated in each legislature in which it will have effect. So far, the Order has been debated and approved by the Scottish Parliament and the Senedd Cymru, and it was debated yesterday in the House of Commons. The Order, if approved, will make the following changes to UK ETS: it will implement a reduction of the UK ETS cap to align with a net zero trajectory consistent with UK and NI net zero objectives. To deliver on commitments given in the Government's response to developing the UK ETS consultation, the number of allowances auctioned from 1 January 2024 onwards has already been reduced. That has been facilitated through amendments made under the Finance Act to the UK ETS auctioning regulations to support a smooth transition for scheme participants whilst sending a strong signal to decarbonise. That course of action was taken as it was not possible to bring forward an amendment to the 2020 Order, which I am bringing to you today, on a UK-wide basis whilst the Assembly was not sitting. To delay the implementation of the cap reduction would have resulted in a steeper reduction in availability of allowances from the previous cap to the net zero trajectory, which would have been unfair to participants. The Order creates a flexible reserve of allowances that will be stocked from allowances such as those that remain unallocated and have been available to participants for free. That share could be used for, for example, future market stability purposes to mitigate unexpected price shocks. The Order will also extend to Northern Ireland UK ETS amendments that were previously implemented in Great Britain only to reinstate policy consistency across the UK jurisdictions. They include technical changes such as capping the maximum free allocation that aircraft operators are eligible to receive — no aircraft operators registered in Northern Ireland are in receipt of free allocation; clarifying the treatment of carbon capture and storage plants; and extending the scope of the UK ETS to include flights from Northern Ireland to Switzerland in order to ensure uniformity of approach across the UK. The Order will introduce a civil penalty for failure to submit information to regulators and a deficit notice for use in the instance of an operator's failing to surrender sufficient allowances for its emissions by the surrender deadline. It will also introduce amendments to ensure a more consistent approach by regulators to the application of such penalties. Those are the main elements of the Order. As I stated, the amendments in the draft Order are mainly of a technical and operational nature, and they implement a net zero-aligned emissions cap. The emissions cap is consistent with the UK and devolved Administrations' decarbonisation trajectories for the sectors within the scope of the scheme. The Order does not extend the scope to additional industrial sectors. Along with the other UK Administrations, my Department is considering further development and expansion of the scheme as part of ongoing and planned UK-wide consultation exercises. The changes in the Order are the result of agreed policy. A UK-wide impact assessment, published alongside the main Government response to the 2022 consultation, reflects the position of all Administrations across the United Kingdom, including Northern Ireland. It reflects the different pace at which individual nations can decarbonise, while recognising that the UK ETS is, by design, a UK-wide scheme that delivers a common carbon price across all four jurisdictions. The UK ETS Authority has recognised the potential impact of the reduction in availability of allowances on participants and has taken action to smooth the transition to the net zero cap. That has been facilitated by bringing £53·5 million in unallocated allowances from previous years to market between 2024 and 2027 to ensure, without affecting the climate ambition of the scheme, that there is no sudden drop in allowance supply as a result of the transition to the new cap. That ensured that there has been no sudden increase in carbon prices as a result of the cap reduction, which has been in place under the Finance Act since 1 January this year. I will work with colleagues across the UK ETS Authority and as part of the net zero inter-ministerial group to further consider market stability policy. The Order will embed a UK-wide net zero emissions cap in the 2020 Order and will help to improve the effective operation of the UK ETS. That will help to ensure that the scheme continues to play its part in incentivising greenhouse gas emissions reduction in Northern Ireland and across the UK. I accordingly commend the draft Order to the House.

1,359 words. Text as published by the Northern Ireland Assembly.

Assessment

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Assessed 21 October 2026 at 11:35 UTC by jev-1.13.0 (requested as typesafe/jev) under rubric 2026.10-r9, methodology 1.9.

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