On 8 March 2021, the FCA published Consultation Paper 21/6: Regulating bidding for Emissions Allowances under the UK Emissions Trading Scheme (CP21/6).
In December 2020, the government announced that it was creating a UK emissions trading scheme (UK ETS) that would replace the UK’s participation in the EU emissions trading scheme (EU ETS) from 1 January 2021. The legal framework required to support the UK ETS contains various elements including government legislation and amendments to the FCA Handbook and technical standards. The government legislation takes the form of regulations published by the Department for Business, Energy and Industrial Strategy and HM Treasury. These regulations establish the UK ETS and set out the role and obligations of the UK auction platform.
The purpose of CP21/6 is to reinstate the regulatory framework necessary to support and supplement the government legislation relating to bidding on the UK auction platform and trading allowances in the secondary market. Specifically, the FCA is consulting on the UK Emission Trading Scheme Instrument 2021 which contains amendments to a number of Handbook modules including PRIN, SYSC, TC, FEES, IPRU-INV, COBS, MAR, SUP, DISP, REC, DEPP and LR together with the Glossary, Perimeter Guide and Enforcement Guide.
The proposed amendments essentially take the form of reinstating provisions and definitions previously deleted as a consequence of the UK’s departure from the EU ETS at the end of the Brexit transition period. These deletions were set out in section 3.7 of FCA Consultation Paper 18/36. Additionally, the FCA is modifying some provisions to reflect the fact that the new scheme is made under UK legislation.
The FCA is also consulting on the Technical Standards (Market Abuse Regulation) (UK Emissions Trading Scheme) Instrument 2021 which proposes consequential changes to certain technical standards under the onshored Market Abuse Regulation (UK MAR Technical Standards), which derive from HM Treasury’s legislative amendments to UK MAR. Broadly, these changes clarify the application of technical standards (where relevant) to auction platforms and auctioneers under the UK ETS and/or to UK Emission Allowance Market Participants.
The deadline for comments on CP21/6 is 6 April 2021.
The government has announced that auctions for the UK ETS are due to commence as soon as is feasible and no later than Q2 2021.