U.K. Climate Change Act 2008: What You Need to Be Aware Of

 

This article was provided by Mr. Bevan Farmer who is very familiar with the U.K. Climate Change Act of 2008. It is critical for those U.S. businesses to understand the Act and to meet the milestones of the Act. I am happy to present his comments below.

Introduction

On 26 November 2008, the UK introduced a legally binding framework aimed at tackling the dangers of climate change.

The Climate Change Act 2008 ("the Act"), the first piece of legislation of its kind in any country, and its accompanying strategy, establishes a binding framework of measures to move the UK to a low carbon economy.

The Act provides for legally binding emission targets which aim to reduce emissions of carbon dioxide and other gases targeted by the act by 80% by 2050. The 80% reduction target is measured against the baseline of the emission levels of the relevant gases generated in 1990 or, in some cases, 1995.

It is hoped by the Government that the Act will demonstrate that the UK is at the forefront of those countries who are working towards establishing a post 2012 global emissions agreement.

Overview

The aim of the Act is to establish a new approach to the issue of climate change. In order to do this, the act sets out how the UK will:

• improve carbon management; and
  
• move towards a low carbon economy (and provides a framework to achieve this).
  

The Act aims to establish a new approach to the issue of climate change by:

• setting ambitious targets in reduction of omissions;
  
• establishing powers to help achieve these targets;
  
• strengthening the institutional framework; and
  
• enhancing the UK's ability to adapt to the impact of climate change.
  

Key Provisions

Legally Binding Targets

Section 1 of the Act states that the Secretary of State must ensure that the UK carbon account is at least 80% lower than the net UK emissions of carbon dioxide and the other green house gases (GHGs) targeted by the Act in 1990, or, in cases of some of the GHGs, 1995.

A System for Carbon Budgeting

To achieve the targets, the Act introduces a budgeting system. The Act provides that carbon budgets must be set for each five year period, the first period being 2008 to 2012. The budget for the 2008 to 2012 period is to be set before 1 June 2009. The carbon budget "caps" the level of emissions permissible for each five year period.

As soon as practicable after each budget has been set, the Government must provide to Parliament policies and proposals on how the target is to be met.

This section of the Act effectively provides that, of the 80% reduction target, a 26% reduction must be achieved by the end of 2020.

Carbon Credits/Units

These are the "units" which represent either:

• a reduction in an amount of GHG emissions;
  
• the removal of an amount of GHG from the atmosphere; or
  
• an amount of GHG emissions allowed under a scheme or arrangement imposing a limit on such emissions (such as the System for Carbon Budgeting).
  

These units will be used to keep track of the reduction in GHG emissions and set the Carbon Budgets.

Creation of the Committee on Climate Change

The Act established, from 1 December 2008, a Committee on Climate Change ("the Committee").The Committee advises, amongst other things, on appropriate targets for reducing carbon and GHG emissions both in relation to the 2050 target and the five year budgets. The Committee will also provide annual reports on whether progress is being made to achieve the relevant carbon budget in place at that time and to recommend required measures to achieve the budget.

Guidance on Reporting

For companies, two of the main points of the Act are:

1. the requirement for the Government to issue guidance by 1 October 2009 on the way companies should report GHG emissions; and
   
2. the possibility that the Government may make regulations under section 416(4) of the Companies Act 2006, which will provide how information detailing each company's GHG emissions is to be included in the directors' report. The Government must make its decision in this regard by no later that 6 April 2012.
   

Further Measures

The Act provides that each of the national authorities may establish a trading scheme for GHG emissions faster through secondary legislation. These schemes are schemes that:

• limit or encourage the limitation of activities that consist of the emission of GHGs or that cause or contribute, directly or indirectly, to such emissions; and
  
• encourage activities that consist of, or that cause or contribute, directly or indirectly, to reductions in GHG emissions or the removal of GHG from the atmosphere.
  

In addition, provisions are made to encourage the use of biofuels, provide financial incentives in relation to reducing household waste and to levy a minimum charge on single use carrier bags.

Comment

The UK government should be congratulated for putting forward this piece of legislation. However, whilst the Act does provide for a legally binding target to decrease carbon and GHG emissions by 2050, it is interesting to note that the Act also provides the right, subject to certain events taking place, for the Secretary of State to amend the 80% reduction target and/or to amend the base year on which the reduction measured against (currently 1990 for carbon dioxide and 1990 or 1995 for other GHGs).

To put the 80% target in perspective, in March last year, Defra published figures showing that, for 2007, the total GHG emissions in the UK were estimated at 639.4 million tonnes carbon dioxide equivalent, with carbon dioxide making up 543.7 million tonnes of the total figure (approximately 85%).

The 1990 base for net UK emissions of carbon dioxide and other GHGs under the Act has not yet been published. However, the Kyoto 1990 base for gases of this kind were 592.4 million tonnes for carbon dioxide and 181.1 million tonnes carbon dioxide equivalent for other GHGs. Accordingly, by the end of 2007, on the estimated figures provided in March 2008, the UK had reduced its carbon and GHG emissions by approximately 17%.

Currently emissions from aviation and international shipping are excluded from the ambit of the Act. The Act provides that, by 31 December 2012, the Secretary of State shall, by regulation, provide the circumstances in which and the extent to which emissions from aviation or international shipping are to be regarded for the purposes of the Act or provide a report to Parliament as to why these emissions will be excluded.

Dates for your diary

• Spring 2009 Proposals for the first three carbon budgets (to be delivered with the 2009 Budget (fiscal);
  
• 1 June 2009 The first three carbon budgets are to be put into legislation (and, therefore, shall be legally binding);
  
• Mid 2009 Government to publish policies and proposals on how to meet the first three carbon budgets.
  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

You can contact Mr. Farmer at the following:

Mr Bevan Farmer
Shadbolt LLP
Old Change House
128 Queen Victoria Street
London
EC4V 4BJ
UNITED KINGDOM
Tel: 845 4371000
Fax: 845 4371001
E-mail: mondaq@shadboltlaw.com
URL: www.shadboltlaw.com