Big changes ahead in 2028 with expansion of UK Emissions Trading Scheme

Our Sector Director for Waste & Circular Economy Gavin Ramsey’s opinion piece first appeared on Circular online on 6 August 2024; The big changes ahead for the UK Emissions Trading Scheme (circularonline.co.uk)

The UK Government is consulting on proposals to expand the UK Emissions Trading Scheme (ETS) which sets a limit on the quantities of greenhouse gases emitted from certain energy-intensive activities. Synergie Environ Sector Director Gavin Ramsey says energy-from-waste (EFW)/incinerator operators and their customers are likely to face significantly higher costs with this extension, making strategies to reduce emissions, coupled with treatment options such as plastics segregation and reprocessing, essential.

As well as the economic impact, waste facility operators will also be obligated to meet certain requirements around the monitoring and reporting of their CO2 emissions, as well as external verification, development of emissions improvement plans, and applying for and maintaining an emissions permit.

The UK Government is currently consulting on proposals to expand UK ETS to cover all forms of waste incineration. Technologies that constitute “waste incineration” are facilities that either burn waste for the purposes of energy recovery (including advanced thermal treatment and advanced conversion technologies), or that produce fuels for burning (including production of sustainable aviation fuel). The definition does not currently include processes where the primary purpose is to degrade waste material into monomers and polymers for recycling, which would exclude thermal treatment technologies such as pyrolysis where the primary output is char.

Expansion of the scheme would mean that all facilities in the “waste incineration” category would have to apply for an emissions permit, the nature of which depends on estimated annual CO2 emissions. Currently, permits are issued in two categories: greenhouse gas emissions (GHGE) permits and hospital and small emitter (HSE) permits, with an additional ultra-small emitter (USE) GHGE permit sub-category.

Facilities which hold a GHGE permit are obligated to monitor and report greenhouse gas emissions (CO2 emissions in the case of waste facilities). The monitoring mechanism has not yet been finalised for the waste sector, but the UK Government proposes that only fossil CO2 emissions (from incinerating plastics and other fossil-derived hydrocarbons) need to be reported, discounting organic CO2 emissions from food waste and other biological carbon.

As with GHGE-permitted facilities under the current scope, the reported emissions must be verified by an accredited organisation. In addition, operators must surrender sufficient carbon allowances to cover their emissions and face penalties if sufficient allowances are not surrendered.

Currently, operators can apply for a HSE permit if their annual CO2 emissions are less than 25,000 tonnes and the total installed thermal capacity of the installation does not exceed 35MW. HSE permit holders still have to monitor, report and self-verify their emissions but do not have to surrender carbon allowances. They are subject to emissions targets and will be liable for penalties if these are exceeded. In-scope waste installations would have to monitor, report and verify their emissions prior to 1st January 2028 to demonstrate that these are within the HSE threshold.

Ultra-small emitters are any installations that produce less than 2,500 tonnes of CO2 per year. They do not require a permit but are obligated to monitor emissions and to notify the regulator if the threshold is exceeded and must monitor, report and verify their emissions prior to 1st January 2028 to demonstrate that these are within the threshold.

Expansion of the scheme will have a significant cost impact on waste incineration. Those requiring a GHGE permit would face administration costs associated with permit fees along with emissions monitoring, reporting and verification – an estimated £25,000-£35,000 per year.

The largest annual cost would be the purchase of carbon allowances, where one allowance is required per tonne of CO2 emitted. One tonne of municipal waste yields approximately 1 tonne of fossil CO2 on average when incinerated, meaning the average UK EFW facility would require 280,000 carbon allowances per year of operation (based on 53 operational facilities processing 14.85 million tonnes of waste in 2021).

Operators are currently required to surrender sufficient allowances on an annual basis to cover their emissions in the previous year, or incur penalties.

As UK Government has indicated there will be no ringfencing of allowances for newly-adopted sectors, carbon costs will be subject to open market impacts. This means the cost and availability of carbon allowances for in-scope facilities will be the same as for all other industries.

It is also the opinion of UK Government that free allowances are not an effective method of managing carbon leakage within the waste industry, and are considering other proposals for this. This means that the average cost of purchasing carbon allowances for an EFW facility within the scope of UK ETS would be £11.2 million per year at current UK carbon prices (c.£40/tonne), assuming no availability of free allowances (although it should be noted that an alternative to free allowances could be adopted).

From 2028, any EFW facility that falls within the scope of UK ETS will be required to monitor and report their greenhouse gas emissions on an annual basis, in accordance with an agreed monitoring plan, as well as to have these figures verified by a UKAS-accredited third-party verifier (with the exception of those with small or ultra-small emitter status). There are also existing obligations on certain installations to submit a GHGE improvement plan on an annual basis. It is likely that the same obligations will be placed on waste installations falling within scope.

UK Government is proposing to introduce a transitional monitoring, reporting and verification (MRV)-only phase for in-scope waste installations for a two-year period, beginning 1st January 2026. During this phase, installations will monitor, report and verify their emissions but will not be obligated to surrender carbon allowances for these two years.

The sector has less than four years to plan for the significant changes coming its way. Preparation for this should include developing operational strategies to lower the quantities of CO2 emitted. The sector is yet to widely deploy direct carbon capture technology (although this shows promise, particularly for larger facilities), but other opportunities such as pre-segregation of plastics can also be effective, as well as using waste heat in district heating and the production of low-carbon fuels such as hydrogen to offset direct emissions. It is likely that the most viable solutions will constitute a combination of these approaches.

Gavin Ramsey is the Waste & Circular Economy sector director for decarbonisation and energy efficiency specialists Synergie Environ, part of the PD&MS Group, and has 23 years’ experience in delivering environmental and sustainability solutions across numerous industries. A Fellow of the Chartered Institution of Wastes Management and a Chartered Resource & Waste Manager, Gavin has held key roles across the waste management, construction, minerals and utilities sectors. Find out more about Gavin here.

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