Elisa de Wit from law firm Nicholson Graham & Jones analyses recent environmental court rulings

New statutory basis for trading schemes in waste and emissions

The Waste and Emissions Trading Act 2003 received the Royal Assent on 3 November. It provides for two main environmental initiatives. The Act gives a statutory basis to the emissions trading scheme which was established in the UK in April 2002.

Three different types of participant may take part in the scheme. Firstly, those direct participants who took on a voluntary target for a five-year period in return for a financial incentive. The targets and level of incentive were set through an auction in March 2002.

The second type of participant are those energy-intensive companies which are obliged to meet emission reductions or energy efficiency targets under Climate Change Agreements. Energy-intensive companies are those which carry out activities listed as either Part A1 or Part A2 processes in Part 1 of Schedule 1 to the Pollution Prevention and Control (England and Wales) Regulations 2000 (as amended). These include sectors such as aluminium, cement, chemicals, food and drink, glass, paper and steel.

Thirdly, it is possible for an individual or organisation to open a trading account on the UK Emissions Trading Registry in order to buy and sell allowances. The Registry records all participants' holdings of allowances, and as allowances are bought, they are simply transferred to the new holder's account with the Registry. The scheme enables participants to either meet targets by straightforward reduction, or to beat their target and sell or bank the excess allowance. If a participant exceeds the allowance, they may buy allowances from other participants to enable emissions to remain above target.

The Act introduces statutory penalties for those direct participants who fail to meet their reduction targets, and also makes provision for penalties in future emission schemes.

Waste trading

The new Act also provides a legal framework for a waste trading scheme. This is intended to provide waste disposal authorities with flexibility to meet the stringent and progressively rigorous targets for reducing the amounts of biodegradable municipal waste sent to landfill under the European Landfill Directive. Assuming that the government takes up the four year derogation made available under the Directive, by 2010 landfill of this type of waste must be no more than 75% of that produced in 1995. By 2020 the figure must be down to 35%. The scheme envisages that landfill allowances will be allocated to each waste disposal authority as its target, with the amount of allowances decreasing each year between 2004 and 2020. Insofar as the disposal authority can beat that target, then the balance of the allowance can either be banked (for further use) or traded to another local authority with a lower performance. However, trading will not be compulsory and authorities may choose to landfill as much waste as their annual allowances permit.

It is proposed that allowances will be allocated according to waste disposal authorities' current levels of landfilled biodegradable municipal waste and total current waste arising.

It is also proposed that the Environment Agency will monitor the trading scheme and all trades will need to be registered with the Agency. The Agency is also to provide a bulletin board on the internet to allow authorities to advertise should they wish to sell or buy allowances.

An electronic register will include details of each authority's allowances; allowances which are traded; banked and borrowed and any penalties incurred. Currently it is not apparent whether the register will be open to the public. Waste disposal authorities will automatically be subject to a financial penalty if they landfill more waste in a particular year than their allowances (including any additional allowances which are bought) permit.

Accompanying regulations

Draft regulations giving effect to the details of both trading schemes have now been published by DEFRA. In relation to the landfill allowance trading scheme, various matters still need to be confirmed. For example, the government is consulting on the circumstances in which the Secretary of State should suspend trading and how the penalty for breaching allowances should be calculated. DEFRA is still discussing with the Financial Services Authority whether brokers dealing in landfill allowances will be required to hold an FSA authorisation. Additional licensing requirements such as the level of detail brokers will be required to provide to the Environment Agency about the authorities they are working for are also to be confirmed.

The Act will come into force on dates yet to be appointed by the Secretary of State.



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