My Lords, the regulations before the Committee today are the implementing secondary legislation for the emissions performance standard. The EPS was introduced by way of the Energy Act 2013 and constitutes one of the measures that collectively make up the Government’s programme of electricity market reform.
Noble Lords will be aware that substantive EPS policy—including its application to any new or existing fossil fuel plant—is established by way of the Energy Act 2013. The regulations before us today are limited to making the practical arrangements associated with the EPS legislation contained in the Act. They set out the application of the EPS in cases permitted by the underlying legislation, and, for England alone, put in place the practical arrangements for implementing and enforcing the EPS. We expect that the devolved Administrations will also soon bring forward legislation implementing the enforcement provisions for the EPS.
By way of reminder, the EPS acts as a regulatory backstop to the amount of carbon dioxide emissions that new fossil fuel plants can emit. To clarify, a “new plant” is an electricity generating station that secures development consent after the EPS came into force on 18 February 2014. The EPS is part of the Government’s strategy to transition to a low-carbon electricity system at the lowest cost to consumers, while maintaining security of supply. It works to complement our existing planning policy, which prevents any new coal-fired generating station being approved unless it is equipped with full-chain carbon capture and storage technology. In combination, these measures ensure that any new coal plant will be equipped with, and must use, CCS.
The power to make these regulations is contained in the Energy Act 2013. Part 1 of the regulations establishes their extent and application. Part 2 makes provision for the additional application of the emissions limit duty, which is the legal duty to conform to the requirements of the EPS, and the modification of that duty in specific circumstances. It will apply throughout the United Kingdom. Part 3 sets out the monitoring and enforcement arrangements that will apply in England. I will now describe the operation of these parts in more detail.
As an exception to the EPS applying only to new fossil fuel plants, Part 2 of the regulations clarifies the limited circumstances in which the EPS will be applied to an existing coal plant. The regulations provide that where an existing coal plant installs or replaces a main boiler—so effectively extending the life of the plant by a period comparable to the operating life of a new plant—that plant is treated as if it were a new plant and is therefore subject to the EPS. This is consistent with the approach set out in the Act.
Part 2 also sets out the circumstances in which a plant’s annual emissions limit will be modified. Where a plant commences or ceases operation part of the way through a year, the emissions limit is amended for that year to take into account the portion of the year to which the EPS applies. Similarly, if the installed generating capacity of a fossil fuel plant changes, its emissions limit is to be adjusted to reflect the new situation.
Part 2 also establishes arrangements associated with the three-year carbon capture and storage exemption from the EPS, provided for in Section 58(1) of the Act, the purpose of which is to provide plants adopting CCS with some flexibility during the commissioning of the full CCS chain. The regulations clarify that the exemption applies only to those generating units of the fossil fuel plant equipped with a full CCS chain.
Part 2 also sets out the methodology for calculating emissions arising from qualifying combined heat and power plants, which provides that the emissions associated with the production of useful heat are not taken into account for EPS purposes. This is to ensure that the EPS does not become a barrier to the development and deployment of good-quality combined heat and power. Finally, Part 2, together with the relevant provisions in the Energy Act 2013, provides that where a power plant uses fuel derived from fossil fuel that is gasified off-site, the associated emissions will be taken into account when the relevant power station’s total emissions are calculated. This is to avoid possible circumvention of the EPS.
Part 3 establishes the process by which the monitoring, reporting and enforcement of the EPS will take place in England. Outside England, the monitoring and enforcement obligation will fall to the relevant authority within the territory. These arrangements have been developed in close co-operation with the Environment Agency, which will act as the enforcement authority in England. In designing this framework, we have sought to minimise any regulatory burden by basing it on and tying it to the arrangements already in place for the EU’s Emissions Trading System, which is also administered by the Environment Agency.
Before commencing operation, a plant’s operator will be required to declare its emissions limit—calculated in accordance with Section 57 of the Energy Act—to the Environment Agency. The operator will then be required to provide emissions data where the plant’s total annual carbon emissions, as measured and reported under the EU ETS, exceed the plant’s EPS emissions limit. This approach removes for many plants the need to do significant extra regulatory work, as carbon emissions data already have to be compiled for the EU ETS. Where the reported EU ETS emissions for a plant exceed the plant’s EPS limit, the plant operator will be required to provide a further breakdown of carbon dioxide emissions, identifying those that are relevant for EPS purposes and those that are not. This information will allow the Environment Agency to verify whether the emissions limit for the plant has been breached in any particular period.
Power plants throughout the UK have a strong track record of compliance with their regulatory responsibilities, and many of them took part in our consultation on these regulations last year. We therefore do not expect that there will be breaches of the emissions limit duty. However, in the event that such a breach were to occur, these regulations provide the Environment Agency with the ability to take strong, proportionate enforcement action, ensuring that no plant breaching its emissions limit can benefit commercially from that breach. The Secretary of State may issue enforcement guidance under the regulations that can set the parameters of any penalties to be applied by the Environment Agency in cases of breach by a plant operator. An appeals route is also provided.
My department has worked in close consultation with the devolved Administrations in designing the monitoring and enforcement regime set out in this instrument with a view to ensuring that, consistent with the government policy, a standardised approach to administration of the EPS is applied throughout the UK. I commend these regulations to the Committee.