On 17 December 2020, there was published on legislation.gov.uk The Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2020.

The Greenhouse Gas Emissions Trading Scheme Order 2020 (the principal Order) set up the UK Emissions Trading Scheme (UK ETS) and will be operational from 1 January 2021. Key provisions in the principal Order cover the scope of the scheme, monitoring and reporting requirements, the cap (the total level of emissions permitted) and the trajectory (the rate at which the cap declines) and the roles of the regulators in monitoring and enforcing the rules of the scheme.

The principal Order was the first of a legislative package designed in order to deliver a UK ETS which can be operational by the end of the transition period, ensuring that no carbon

pricing gap emerges when the UK ceases to participate in the EU ETS. A carbon pricing gap could see increased UK emissions and therefore may risk the UK’s ability to meet Carbon Budget and emissions reduction targets.

This latest statutory instrument is the second instrument in the package. It provides amongst other things for free allocation of allowances and for a registry for the UK ETS. The statutory instrument amends the principal Order, Commission Delegated Regulation (EU) 2019/331 and Commission Implementing Regulation (EU) 2019/1842, referred to in the statutory instrument as the “Activity Level Changes Regulation”, another EU instrument enacted for the EU ETS that forms part of domestic law after the transition period and is adopted for the purpose of the UK ETS. The third instrument in the package will be regulations made under section 96 of the Finance Act 2020 to establish rules for the auctioning of allowances and mechanisms to support market stability. This is due to be in force in Q1 2021. In addition, a further set of instruments will set up the financial market oversight framework. The first instrument (The Securities Financing Transactions, Securitisation and Miscellaneous Amendments (EU Exit) Regulations 2020) has already been made and retains the necessary market oversight legislation into UK law.

The statutory instrument comes into force on 31 December 2020.