New regulator could shape world leading UK emissions accounting regime to underpin UK ETS and our Net Zero ambitions
Comment by Dr. Danial Sturge
Carbon Policy Practice Manager - Markets, Policy and Regulation
An underlying theme in this blog series is the importance of accurately monitoring, reporting, and verifying (MRV) all key greenhouse gas (GHG) emissions. There is no point in creating policies like an Emissions Trading System or Carbon Performance Standards if the measurements they rely on bear little relation to empirical reality.
We need to ensure that the MRV and subsequent accounting of emissions reduction and removal is carried out using practices (including proxies) backed by robust and scientific empirical evidence. This will be fundamental for a whole host of carbon policies, including measuring the carbon performance of people’s homes; understanding the impact of land use – be it for farming livestock or growing carbon sucking trees; ensuring that embodied emissions are appropriately policed; and, most crucially, proving that emissions reduction or removal is actually happening. Without it, Net Zero is merely a numbers game played out on a spreadsheet.
What is the UK ETS?
The UK Emissions Trading System (UK ETS) came into operation on 1 January 2021 following the UK’s departure from the European Union’s ETS – covering electricity generation, heavy industry, and domestic flights. Under the ‘cap and trade’ principle, an upper limit of emissions is set – the cap – for all participating installations. Allowances for emissions within the system are auctioned off or allocated for free. Trading of allowances between installations can occur if an installation exceeds or outperforms its limit. In this way, installations are able to achieve emissions reduction in the most cost-effective way that meets their business needs. Government have said the emissions cap will soon be aligned with the UK’s 2050 Net Zero commitment.
Currently, in the UK there is a mix of regulatory bodies that look after the MRV aspects of various carbon policies. For example, Scottish Forestry manages the UK Woodland Carbon Code. But the largest of them is the Environment Agency, which are responsible for emissions reporting under the UK ETS. Their remit is to ensure the smooth running of emissions verification from regulated parties, which in this case are power generators, heavy industry, and some aviation. They also have the power to impose civil penalties should their smooth running be impeded by incorrect monitoring and reporting from emitters. To add to this, devolved nations have differing levels of administrative responsibility.
To date, this has been sufficient, but as more carbon policies are introduced across more sectors, and as those sectors potentially seek to link up their carbon markets over time, sufficient will no longer be enough.
Establishing the principles and frameworks for carbon accounting across the economy.
Tracking the latest science in the MRV of emissions and how it is reflected in both compliance and voluntary carbon markets, as well as potentially for imported embodied emissions.
In doing so, it can ensure monitoring and reporting is robust, transparent, and accurate as far as possible, along with consistent verification across all major emitting sectors.
But such a body could also play an important role in the success of the UK ETS:
Expanding scope and/or linking to other domestic carbon markets will require MRV that is on a level playing field. That’s to say that one tonne of carbon dioxide reduced or removed in one sector is equivalent – from a carbon credit perspective at least – to one tonne of carbon dioxide reduced or removed in another sector. Otherwise, we risk undermining investor confidence and the potential to expand the scope of carbon markets.
Internationally, the creation of the UK ETS could be an important opportunity for the UK to play a leadership role in progressing important aspects of the Paris Agreement – namely Article 6 – which will largely dictate (if agreed) the rules for linking carbon markets and other forms of international cooperation. A significant sticking point is the MRV of emissions between jurisdictions.
In both cases, the UK once again has an opportunity to lead. A scientifically independent body with economy-wide oversight of emissions MRV and accounting can provide investor confidence in carbon policies. And when negotiations between nations begin, it can help ensure stability and shape the way forward to increased transparency and trust in an emerging global carbon market. This will be key to the broader global effort to limit warming to 1.5 degrees or less.
In the next set of blogs, we will begin to delve into land use and the global view.
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