On 12 February 2021, there was published on the legislation.gov.uk website a draft of The Recognised Auction Platforms (Amendment and Miscellaneous Provisions) Regulations 2021.
The draft statutory instrument is part of the legislative effort to establish a UK Emissions Trading Scheme (ETS) and accompanying emissions allowances market. The UK ETS was established by the Greenhouse Gas Emissions Trading Scheme Order 2020 – it is a UK-wide greenhouse gas emissions trading scheme to encourage cost-effective emissions reductions which will contribute to the UK’s emissions reduction targets and net zero goal. The draft statutory instrument updates existing UK provisions to reflect that the UK is no longer part of the EU ETS but has now established the UK ETS. The holding of a UK auction of emissions allowances will, if approved by Parliament, be governed by the Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021 (see below). The draft statutory instrument is intended to ensure the appropriate regulatory treatment of UK emissions allowances, which includes replacing references to EU emissions allowances with references to UK emissions allowances or adding references to UK emissions allowances to existing references to EU emissions allowances (such as in relation to emissions allowances listed in paragraph 11 of Part 1 of Schedule 2 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001).
The draft statutory instrument also amends the onshored Market Abuse Regulation (UK MAR). The result of the amendments is that UK MAR will cover the primary and secondary market trading of UK emissions allowances and the secondary market trading of EU emissions allowances.
The amendments made by the draft statutory instrument to UK MAR include:
- The scope has been changed to apply to behaviours or transactions, including bids, relating to the auctioning of emissions allowances on an auction platform recognised under the UK Recognised Auction Platforms Regulations 2011.
- A new definition for UK Emission Allowance Market Participant (UK EAMP) has been inserted. Broadly, a UK EAMP is a person who trades or bids, directly or indirectly in UK emissions allowances and who has emissions or rated thermal input related to their UK installations and activities under the UK ETS which exceed either of the minimum thresholds referred to in UK MAR. A UK EAMP is subject to requirements to disclose inside information, maintain insider lists, and to notify “persons discharging managerial responsibilities” transactions for UK and, in certain circumstances, EU emissions allowances.
- The definition of inside information for emissions allowances has been updated so that, broadly speaking, for participants in the market for UK emissions allowances who have aggregate emissions or thermal rated input at or below the minimum thresholds referred to in UK MAR, information about their physical operations related to their UK installations and UK aviation activities is not considered to be inside information as it does not have a significant price effect on the price of emissions allowances.
- The exemptions from UK MAR have been amended to include activities of certain persons and bodies within the UK and devolved governments where these concern UK emissions allowances and are carried out in pursuit of climate policies of the UK or any part of the UK or in accordance with any international agreement to which the UK is a party. This is so that the UK and devolved governments might effectively pursue carbon reduction goals.
- UK MAR continues to apply in relation to the secondary market trading of EU emissions allowances where these activities fall within the territorial scope of UK MAR. The prohibitions concerning insider dealing, unlawful disclosure of inside information and market manipulation continue to apply to EU emissions allowances. The definition of inside information for emissions allowances continues to exclude information about the physical operations of participants in the market for EU emissions allowances relating to EU installations or EU aviation activities, on the basis that such information is deemed not to have a significant effect on the price of emissions allowances. EAMPs as identified under EU MAR continue to be included in provisions concerning insider dealing and market soundings.
On the same date there was also published on the legislation.gov.uk website a draft of The Greenhouse Gas Emissions Trading Scheme Auctioning Regulations 2021. This draft statutory instrument makes provision for the auctioning of emissions allowances to emit 1 tonne of carbon dioxide equivalent under the UK ETS and introduces mechanisms to support market stability in this new scheme.